IBS

The IBS Interview

What is the scenario that will unfold for domestic banking product suppliers over the next three years? Hari Misra speaks with Hanuman Tripathi, Managing Director, Infrasoft Technologies
IBS: What are the opportunities for banking product companies in the Indian market for the next two to three years, given that core banking solution selection is over at almostall the major banks?

Trips: There are a few major areas that present opportunities in the short to medium term. The most immediate requirement for Indian banks is in the area of compliance to anti-money laundering (AML) and ‘know your customer’ (KYC) norms laid down by the Reserve Bank of India (RBI). The RBI and the Securities Exchange Board of India (SEBI) have become very strict after the recent IPO scam, where KYC norms were flouted by quite a few well-known banks operating in the country. I expect around 15 to 20 banks in India to select an AML solution within the next three months. Another opportunity arises out of Basel II compliance, which in my opinion, should be viewed less as a regulatory compliance and more as an opportunity to strengthen the corporate governance and risk management by banks. However, this opportunity may not be as big as the core banking, which involves setting up of huge infrastructure in terms of data centre, network, disaster recovery, and delivery channel integration. Once this infrastructure has been put in place, what the banks would be investing in are ‘expansion technologies’ like AML, risk management, wealth management, and the like. But in case of Basel II, one cannot expect an AML-like quick implementation. A related field is operational risk, which presents a new exercise for Indian banks. The identification and quantification of this risk presents a challenging task, as banks expand their business, move to newer geographies, and set up core banking infrastructure. In addition, risks emanating from external environment like floods, earthquakes, and terrorist activities compound the problem. There is a need for an ‘operational risk calculator’. Identity management is another upcoming area, especially for customers of alternate delivery channels such as ATMs, cards, mobile-purses and Internet banking.

IBS: What about microfinance?

Trips: There is a need for more regulation and standardisation in microfinance. Once the government puts regulation in place, which is expected in about a year’s time, significant amounts of technology infusion will take place in this sector. Currently, the lack of standards in reporting methodologies, account keeping and business processes are hindering the application of IT in microfinance in a big way. This sector presents a great opportunity for total branch automation (TBA) product suppliers that are facing threats from core banking implementation, but they will have to quickly acquire the requisite domain knowledge in microfinance.

Trips
Popularly known as ‘Trips’, Hanuman Tripathi has a rich experience of 24 years in the IT and Telecom industry of which the last 15 years has been in the banking solutions’ vertical. He is a science graduate with and MBM from JBIMS, Mumbai. He established Infrasoft Technologies in 1994, and has led the growth of the company worldwide by spotting the banking product opportunities early in the cycle.
IBS: You have a major share in the cooperative banking market in India for transaction processing solutions. How do you see this market shaping up?

Trips: Smaller co-operative banks having not more than five to ten branches cannot afford the costs of setting up their own centralised transaction-processing infrastructure. For them, the only option available is to unite and set up a shared core banking infrastructure. Alternatively, they can use the existing infrastructure set up by their larger counterparts.

IBS: Has the time for offering core banking solutions on the ASP model arrived in India?

Trips: Absolutely. The early signs are clearly visible. For instance, Janata Sahakari Bank, which has around 14 branches, got its data centre inaugurated by ex-chief minister of Maharashtra, Sharad Pawar, early this month. It runs our core banking solution OmniEnterprise on DB2 and Linux platform. The bank is very aggressively targeting other co-operative banks for the shared use of this data centre. Dombivli Nagrik Sahakari Bank is using Thane Janata Sahakari Bank’s core banking infrastructure. Saraswat Bank has set up jointly with us its subsidiary, Saraswat Infotech Limited (SIL), which offers our solution on the ASP model to other co-operative banks. The model was tested by SIL when Sarawsat Bank acquired Maratha Mandir Co-op Bank. For some time, the two banks were supported separately from the same data centre.
‘Indian banks have not been able to completely utilise the data available from their CBS. The 360- degree view of the customer seems to be a couple of years away for most Indian banks.’
- Hanuman Tripathi, Infrasoft Technologies
IBS: Apart from AML, which other areas are you targeting for the global market?

Trips: Islamic investment banking and wealth management. There are only a few full-fledged Islamic investment banking solutions available worldwide. We have gained our first client in UK, the European Islamic Investment Bank, where OmniEnterprise will act as the bank’s Sharia compliant single back office processing engine across its Islamic treasury, capital markets, investment banking, trade finance, asset management and advisory businesses. We are targeting 16 banks spread across Europe, Middle East and South East Asia, and hope to close one or two deals in Europe, and three to four in the Middle East and South East Asia. To step up the marketing effort in these regions we have opened a new office in Dubai and will be converting our office in Kuala Lumpur in Malaysia into a subsidiary with MSC status this year.

IBS: Do you see potential for wealth management products in India?

Trips: Private sector banks, MNC banks and a few public sector banks in India have started looking at wealth management as a serious business opportunity. Still, it is in a nascent stage with most banks still concentrating on portfolio management for their clients and doing some amount of cross selling. In my opinion, Indian banks have not been able to completely utilise the data available from their core banking solutions. They still operate by business lines and product-centric business processes. My own bank does not have a complete view of me as a customer. The 360-degree view of the customer appears to be a couple of years away for most Indian banks. (We join Trips in this observation. Technologyled retail banking has pushed relationshipbased banking into the oblivion- Ed.)

IBS: Is the approach towards wealth management different in other countries?

Trips: Each country and region has a different approach towards wealth management. That is why we are building country and region specific versions of our wealth management solution. We have an India-specific version, one for the Middle East, and another one for European market. I feel that the new generation core banking solution in future will have built-in wealth management functionalities.

IBS: We have witnessed an increase in the mergers and acquisitions among banking technology suppliers last year, both in India and worldwide. Do you think it will continue unabated or the peak is behind?

Trips: Mergers and acquisitions will continue. Except for hostile take-overs, it is usually a win-win situation for both the companies. Size is crucial for getting large contracts and attracting good talent. If a company wants to attain size in less time, its only option is to grow through the inorganic route. For instance, by year end we are looking at acquiring two banking software services companies, one in the US and another in UK. These acquisitions will help us in leveraging their existing client relationships and market knowledge. We are also negotiating with a US$10 million company, but that might take a little longer.

IBS: The last question. Do you have plans of getting Infrasoft listed?

Trips: There are two issues here. One is achieving the requisite size before listing and another one relates to market sentiment. You might see us approaching the market with our IPO after we declare our results for FY 2006-07.