The giant is waking up, and how! State Bank of India, the largest commercial bank in India, is investing massive amounts in its IT initiative to bridge the distance between itself and the private and foreign banks who have stolen the technology thunder in Indian banking. Rajneesh De has the details

Y Radhakrishnan says the entire IT strategy is geared at outsourcing to strategic partners with the view to making a strong, efficient bank

The Rs 3.16 trillion State Bank of India (SBI) remains the largest commercial bank in the country and continues to enjoy the largest mindshare among the Indian public, notwithstanding the aggressive onslaught in recent times by the new private and MNC banks. Whichever way you look at things, SBI remains the biggest—in terms of profits, assets, deposits, branches and employees. At the end of the financial year 2000-01, the bank had total assets of Rs 3,156.44 billion ($67.71 billion), total deposits of Rs 2,428.28 billion ($52.09 billion), and made a net profit of Rs 16.05 billion ($344 million) during the year.

SBI has a vast domestic network of 9,019 branches and a staff strength of 2,14,845. It commanded one-fifth of the deposits and loans of all scheduled commercial banks in the country. While SBI has remained the public face of Indian banking for nearly two centuries, initially in its Bank of Calcutta avatar, followed by Bank of Bengal and finally as the Imperial Bank of India, even its most ardent supporters would admit that in recent times SBI has often failed to keep pace with the new nimbler banks, especially with respect to modern technological innovations. But, in the words of its managing director Y Radhakrishnan, State Bank of India is now all set to undergo a paradigm change, thanks to a massive IT infrastructure overhaul, involving investments to the tune of Rs 500 crore over the next three years.

This makes SBI the largest investor on IT in the PSU sector, substantially higher than peers like Bank of Baroda with Rs 300 crore, Life Insurance Corporation with Rs 250 crore and Bharat Petroleum Corporation (BPCL) with Rs 200 crore. The bank has already invested Rs 500 crore on IT in the last six years. More specifically, its investments on IT in FY00 and FY01 were Rs 98 crore and Rs 119 crore respectively.

Investments of this amount immediately raise the question: What are the initiatives and how they are going to benefit the bank? Radhakrishnan lists seven major projects which form part of SBI’s IT initiatives: Internet banking, ATMs, networking of 1,500 branches all over the country, core-banking solutions, asset-liability management, treasury management and trade finance. And the benefits? Explains Radhakrishnan, “The efficiency of the bank will improve by 15-20 percent after all the projects are implemented. We handle about 40 percent of the Indian economy and this will be a great boost to the Indian economy. All I can say is, the giant is on the move.” The principal objective of the exercise was to use the Internet and integrate the delivery channels of the bank, which have been functioning as islands at present. Branches which have LANs will be now connected with the Wide Area Network (WAN).

These initiatives would also enable SBI to substantially shed much of its flab. According to Radhakrishnan, as and when the whole project is implemented, there will be redundancies. There will also be a total redeployment and retraining of staff and redundancies to the extent of 35-40 per cent of the existing staff, and consequently there will most probably be a second VRS. According to an analyst, SBI has about 2,10,000 employees as of now. It may be recalled that SBI’s first VRS in 2000-2001 saw nearly 23,000 staffers opting for the same. The IT initiatives would therefore cause another 80,000 employees to take the VRS route, and negotiations are already on with unions in this regard.

Considering the importance these projects assume in this context, a detailed look at some of them would perhaps be not out of the place. For its Internet banking initiative, SBI has tied-up with Satyam and would invest about Rs 12 crore for implementing its “Broadvision” technology. As a result, SBI’s Internet banking will be extended from 150 branches as of now to 500 branches before the end of the year. This initiative, according to Radhakrishnan, allows SBI to offer transactional banking to its customers, enabling them to conduct online transactions in a secure manner. Like other Internet banking initiatives from private banks, the salient features of this SBI initiative includes multi-level password protection, digital certificate for the server, and 128-bit SSL encryption between the browser and the Web server. Launched in July 2001, this Internet banking initiative is facilitating some important transactions for both retail customers and corporates with SBI. The total number of registered users currently using Internet banking at SBI is over 18,000 and average hits per day are over 16,000.

SBI also has a strategic alliance with NCR for expansion of its ATM network. According to Radhakrishnan, SBI plans to increase its ATMs by another 1,500 by next year, from its current count of 1081. It also plans to have a 10,000-strong ATM network in four years. All its future ATMs will be online and networked. Having already issued 1.5 million ATM cards, it also accounts for one-third of the ATM cards issued in the country. SBI’s ATMs will also provide facilities like utility bill payments, insurance payments and railway ticket reservation, the first of which has been launched in Mumbai. That SBI is very serious on the ATM front can be gauged from the fact that it has launched 765 ATMs in the last one year, and more spectacularly, 540 in the last five weeks. Says Radhakrishnan, “A manual transaction costs the bank Rs 76 while the same transaction via ATM costs Rs 26. Thus, each ATM transaction saves the bank Rs 50. With SBI having 90 million customers making 25 million transactions every day, the amount of savings by transferring the entire customer base to ATMs is mind boggling.”

The project on networking 1,500 of the bank’s branches across 51 cities would be done by Datacraft, a company with an established record on this front. This hardcore networking system, to be completed over the next eight months, would facilitate swift fund transfers and would, according to Radhakrishnan, become the backbone of the bank in the future. In addition to the networking initiative, the asset liability management solution is being sourced from Oracle, while it is a combination of Reuters and Unisys for treasury management. The bank would also finalise a provider for a trade finance package within the next 15 days.

A Tata Consultancy Services (TCS) consortium comprising Financial Network Services, Australia and Hewlett-Packard India would supply the core banking solution for SBI. The deal for Rs 150 crore, the biggest ever single banking contract in Indian IT, was struck recently. The project involves procurement, supply and installation of hardware and the core banking software, customisation of the core banking software, implementation, rollout of the software at more than 13,000 SBI branches, and training and support. Hewlett-Packard will provide its ‘always-on Internet Infrastructure’ solution, consisting of Superdome servers and XP storage systems, whereas the core banking system (B@NCS-24) will be supplied by FNS. The banking, financial services and insurance (BFSI) group at TCS will implement the project. Reveals Radhakrishnan, “Over the next 2-3 years, core banking will be rolled out to over 3,000 branches of SBI and its seven associate banks, bringing the benefits of modern technology to customers in over 250 cities and towns.”

In addition to all these, recent months have also witnessed a spate of other IT initiatives from SBI. These include State Bank Electronic Payment System (STEPS), a technology-based, fully-automatic electronic payment system, to meet customer demand for faster remittances and speedier collection of outstation instruments. In addition, under STEPS e-transfer has been introduced in place of telegraphic transfers, enabling same-day credit to customer accounts, while E-Realisation is meant to facilitate expeditious reconciliation of outstanding entries in cheques/dividend warrant purchased accounts at the branches.

There is also Electronic Nostro Reconciliation (ELENOR), an online real-time reporting package for forex transactions to SBI’s foreign department at Kolkata from all forex intensive branches (444), for reconciliation purposes. The system provides connectivity with all forex branches and handles all types of forex transactions, including exports, imports, inward and outward remittances, forward contracts, FCNB loans, etc. A fully automated software engine has been installed at the foreign department at Kolkata for Nostro reconciliation. Remote connectivity and enquiry/investigation facility has been extended for select branches/offices, which makes available latest status of remittances/bill payments/collection online.

MICR cheque processing centres have also been set up at four centres—Mumbai, Baroda, Chennai and Surat, and these are to be extended by the end of 2002 to New Delhi, Kolkata, Patna, Jodhpur, Meerut, Gwalior, Jabalpur, Calicut, Nasik and Trichur. SBI has also launched the country’s largest videoconferencing network in January, 2002. Currently, the bank is also in the process of setting up an Electronic Data Interchange (EDI), which would allow for online approval of licences and payments for the Director General of Foreign Trade, Indian Customs and other agencies involved in exports. This project also entails the setting up of a payment gateway.

Radhakrishnan has the final word. “The entire IT strategy is geared at outsourcing to strategic partners with the view to making a strong, efficient bank.” However, though outsourcing might be the pertinent flavour of the month in SBI, it has also revived its plans to form an IT subsidiary and has forwarded a request to the government. The finance ministry had earlier shot down the proposal saying that the bank should concentrate on its core business and not get into IT. Let’s see what happens this time around.