V Leeladhar: IT for business excellence
Address by Mr V Leeladhar, Deputy Governor of the Reserve Bank of India, at the Banktec (India's
Bank Tech Summit), Mumbai, 21 September 2006.
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Ladies and Gentlemen,
It gives me great pleasure to be present here to share a few thoughts on one of the important drivers
of banking business in the world. Information Technology or IT has made substantial inroads into the
financial sector, it has in fact transformed the way banking operations are conducted. The benefits
brought about by IT in handling large processing volumes, in providing for quick, safe transaction
processing, economies of scale and in expanding the reach and coverage of banking services, and
above all product innovation have all been enormous.
Today's banking business has become most challenging with customer expectations rising as each
day passes by. This calls for substantive changes in the way in which banks do the business and in
the nature of products they offer. If the well accepted principle of Six Sigma that signifies excellence in
business processes will have to happen in the Indian financial sector, I have no doubt that the IT has
to play a crucial role.
Let me commence by flagging some issues which stem from extensive use of IT. Organisations that
understand and tackle these issues (being very common perceptions let me call them "premises") will
be in a better position to harness the opportunities. This may well differentiate a winner from a looser.
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The most common premise is that for successful technological improvements, people with
the right aptitude are required; many organisations even conduct aptitude tests to select the
'right' type of personnel. My own experience is that attitude is more important than aptitude.
A person who is willing to learn is a better asset than one who is technology savvy but
refuses to change.
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Another premise is that if technological changes are implemented at lower levels, these can
be replicated at all tiers of the organisation. This may not be always the case. Most
successful technological updations have followed the 'Top-Down' approach, where the
changes are not merely triggered from the Top but are followed religiously by the top most
official in the hierarchy. Most organisations which have effective Information Security (IS)
policies are those where the commitment and implementation levels commence from the top
and percolate downwards.
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A common premise about technology is that technology provides solutions for all problem
situations. While this may be generally true, it is very often the case that there are
technological solutions for operational problems, but operational restrictions cannot come to
the aid of technological problems. In other words, problems and issues relating to the
technology have to be sorted by means of changes in the technological solution itself. All of
us must have experienced vendors who have provided technology solutions suggesting that
some procedures or that some of the environmental aspects could be modified to suit the
technological process which has been implemented. This is a case for certain failure. The
case of a new bank which commenced its operations by dispensing away with the savings
bank pass books had to beat a hasty retreat and give the option to its customers by
providing a technological solution - customers could take print outs of their statement of
accounts at any time from their own system!
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Yet another premise is that the process of change can be forced upon people. It is now
widely accepted that change has to be from within and external forces only facilitate or
accelerate the process of change. The old adage of 'You can take the horse to the water but
cannot make it drink' is relevant in this context. A case in point pertains to the use of cards
by customers of banks. A decade ago, banks had to offer incentives to customers to use
cards for their transactions, and there was general reluctance to use the card by even the
discerning customer. Today, customers have realised that the cards offer better convenience
and have changed over to large scale usage of the cards, based on their conviction. That the
Direct Selling Agents employed by banks hastened the process of migration is an accepted
fact, but this was not the major factor in the change process.
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Perhaps the most important premise relating to change pertains to the relationship between
security and stability. If a change process has to be successful, there has to be a
harmonious balance between the perceived levels of insecurity and instability by the
participants in the change process. Even if one of these factors has a higher perceived
weightage, the change becomes difficult to implement.
In a nutshell, it is essential that managing change is taken as a very serious task with the complete
commitment and support from the Top levels of all organisations. This is particularly more relevant in
banks, where personnel manning the front desk are the most important link between the bank and the
customer can make or break a change. A bank staff telling a customer 'This new system implemented
by my bank takes a very long time; please wait for updating your pass book' or tells 'We have moved
to a Core Banking Solution; please leave your cheque requisition slip and come back after two days
for the cheque book' is sure enough to wreck the entire change process and image building that the
bank has ambitiously embarked upon.
Having given a gist of the need to effectively manage change, let me now outline some of the areas
which offer major challenges in the area of large scale technological upgradation.
At the top of the pyramid of challenges is the choice of the right technological solution. Most often than
not, we are guided by vendor presentations and experiences of other organisations in the process of
selection and we end up in getting a system which may not necessarily be the best one for the bank
concerned. While broad technological contours may be the same, customisation may hold the key to
providing the correct system for each individual organisation. I am reminded of the case of a bank
which started installing Cash Dispensing Machines a few years ago, based on some experiences of
the West. Today, we have observed that Automated Teller Machines (ATMs) with multi-functional and
regional language capabilities are being construed as the optimal fit for cash based and other related
transactions of customers.
The next challenge relates to the level of security in the usage of IT based systems in banks. Much
has been said and detailed about the need for fool proof security systems in banks, but we find that
security breaches and the consequent perpetuation of frauds are also taking place. Security in
banking applications is not a feature but a built-in process. The Public Key Infrastructure (PKI) which is
positioned as a very advanced security mechanism may be brought to nought if there is a compromise
of the smart cards housing the digital signature, by the holder and he shares the card with an
unauthorised person. Thus, the entire chain of procedures and components of a system have to be
looked at in a holistic manner to ensure that security is all pervasive across the entire chain of
activities.
Another important challenge facing all of us is the need for standardisation. While standardisation
does not mean that the same uniform systems are used across all banks, the bare minimum
requirements to ensure inter-operability has to be provided for. With margins across different partners
in business thinning, it is essential that banks take up Straight Through processing and
Interoperability as key issues to be addressed in all their technological implementations. The usage of the
SFMS of the IDRBT, it is hoped, will address this concern to a large extent. This is also a challenge
which I am sure that the IDRBT will also take up in right earnest for the benefit of the financial sector
as a whole.
The growth in mobile communications and the exponential usage of mobile telephony by India's
masses is an aspect which in my view, banks have to look upon as an opportunity to harness to their
benefit. The power of the chip in the mobile phone is enormous and its usage for secure banking
transactions needs to be examined and provided for.
I would also like to touch on another challenge which banks are slowly overcoming. The need for
regular, sustained IS audit is being highlighted by the Reserve Bank for some time now. While some
initiatives have been taken by banks towards achieving this, much more needs to be done. The speed
with which IT implementation and upgradation is being done may outpace the frequency of IS Audit
and it is in the best interests of banks that this vital activity is given due importance.
IT also facilitates a host of other functions which banks have been hitherto performing through manual
operations. Let me take up the case of verification of the genuineness of the customer - the Know
Your Customer or KYC factor. Technology facilitates easier access to verification of information on a
real time basis. Since IT tools provide a scientific and almost real time monitoring and analysis of
funds movement, this would help a great deal in ensuring compliance to Anti-Money laundering
requirements. Many IT based banking solutions have incorporated sophisticated algorithms and
comprehensive permutations and combinations to provide alerts on a real time basis. Such a
facilitation may well be impossible using manual means.
Another vital aspect that has to be taken cognisance of is that technological deployment must always
be consistent with the levels of expertise in each bank as well as the nature and sophistication of its
customers. Alternatively it is important to train all the stake holders to ensure a smooth technological
transformation. Many of you must have had occasion to read the book 'Freakonomics' by Steven Levitt
and Stephen Dubner. The narrative there on the lifetime episode of Paul Feldman on the sale of the
American bread - bagels is an eye opener. He commenced sale of the bagels in an unsupervised
manner which led to a situation where the buyers did not always pay for their offtakes. Nevertheless
the recovery rate was rather encouraging. He further studied the behaviour-versus-payment patterns
and came out with correlations - such as the increased payments during Christmas or even during
pleasant weather situations while catastrophies (such as the 9/11 event) or bad weather resulted in
lesser payment realisations. Based on this he replanned his strategies. Banks could do well to keep
this story in their minds while planning so that their products and services meet employee and
customer requirements - all of which provide improved results for banks in the long run.
Let me now conclude on a positive note. Indian banks have proved that IT based upgradation of
banking services can be achieved within short time spans and at remarkably accurate levels. We have
some of the largest core banking implementations in the world, we have a unique network for the
exclusive use of banks in the form of the INFINET; banks have their own corporate intra-nets which
are functioning effectively; we have the enabling legal infrastructure for large scale IT deployment and
able all, we have a large customer population which has adapted well to the changes using
Technology. These do give us comfort, but let these not lead us to complacency. As India has made a
place in the IT arena, it may not be long before we make our presence felt in an IT enabled banking
world as well. Indian Banks have always risen up to challenges and have successfully overcome them.
Today's success mantra for achieving excellence lies in the optimal use of technology in a manner
where the process of change is managed well enough to blend with customer expectations of
excellent customer service. This in turn would result in better house keeping and improved bottom
lines for the banks and above all in overall systemic efficiency.
My best wishes to all of you and may your efforts lead to creation of IT based bank models of the
morrow.
I wish you all fruitful deliberations during the day.
Thank you.