Kotak leverages IT in bank transition

Kotak Mahindra has recently converted itself into a bank. What did Kotak do with its legacy system, and how did it make the switch? CHITRA PADMANABHAN finds out

March 22, 2003. It was the day when Kotak Mahindra (KM) Finance first unveiled its brand new face as Kotak Mahindra Bank. KM decided to convert itself to a bank to leverage on the benefits of expanding its service portfolio. This effectively meant that services like insurance, broking, investment banking, car finance and mutual funds, which KM had earlier offered as a finance company, would now be offered through a subsidiary of Kotak Mahindra Bank.

“By getting converted to a bank we started leveraging the advantage of developing a sustained relationship with the customer. This also gave us the option to offer a cross-section of products to the same customer base,” explains Dipak Gupta, executive director of the bank.

Considerations

Kotak Mahindra’s technology initiatives enabled it to offer services through all delivery channels right from day one, says Arvind Kathpalia

The way a bank functions is significantly different from that of a finance company. Banks share a more personalised relationship with customers. The IT systems of banks are designed with the customer in mind, and are more tuned to the convenience of the customer. This was one of the biggest considerations of KM before it embarked on its IT initiatives; it wanted to bring about a complete modification of its systems to suit its banking needs. The banking technology space was in a phase of transition when KM chose to convert itself to a bank. Foreign banks and public sector banks were striving to get better at the utilisation of technology. Competition in this space was fierce, and technology acted as the only key differentiator to hold on to existing customers.

KM laid down the clear objective of offering all finance-related services to its customers under one oof, and wanted to deploy state-of-the-art systems to make this possible. They sought the services of MphasiS to counsel them on technology-related matters. “We were new to the banking space and so decided to hire MphasiS as our technology consultant to help us through our plans,” says Gupta.

Technology audit

Before bringing about a complete change in KM’s IT systems, it was important to study the existing system to find out whether anything already available could be put to use. To do this, MphasiS carried out a complete technology audit, keeping in mind the roadmap that KM had set for itself. “KM had plans to leverage its existing customers after its conversion, so it insisted that the system’s overhaul be carried out with the least possible inconvenience to its customers,” says Vivek Arora, vice-president for Business Development at MphasiS.

KM had a fairly advanced level of technology deployment before the conversion. Their core system took care of their entire asset-financing business. The system was built in-house, and was used for managing auto loans, truck loans, etc. After the technology audit the bank decided to retain this application. The core system had a flexible and open architecture, and it was easy to integrate it with any modern banking application.

Chosen one

Kotak Mahindra deployed a robust technology infrastructure to offer all finance-related services under one roof, says Dipak Gupta

After the detailed technology audit, followed by discussions with MphasiS, KM decided to lay down a five-year plan with various stages of technology deployments. The bank began looking for a robust and scalable system that was capable of supporting both the increasing customer base and the various products that the bank planned to roll out. “We decided to adopt i-flex’s Flexcube as our core banking product since we found that it met most of our requirements for straight-through processing and single sign-on capabilities,” says Arvind Kathpalia, who is KM’s group head for operations, technology and finance.

Today, the Flexcube modules rolled out on KM’s all-India branch network include core banking, general ledger, management information systems (MIS), commercial lending and trade finance. Flexcube’s Internet banking solution enables KM to offer its customers services across a number of delivery channels such as ATMs, Internet, phone, etc.

Flexcube is able to address various categories of the bank’s customers. For instance, existing customers are able to avail of various delivery channels to carry out transactions with KM Bank. A customer who wants to deal with the bank for multiple products gets a consolidated view of his entire balance. (So if a customer deals with the bank for loans and also has a savings bank account, he can have a bird’s eye-view of all his dealings.) KM’s earlier core system is integrated with Flexcube in such a way that all assets (lendings-related transactions) get posted in the core system while all liabilities get processed in Flexcube.

The bank had laid down its plans with a five-year horizon in mind, involving various stages of technological implementations. As a first step, the core banking implementation was carried out in three months, between November 2002 and February 2003. “KM Bank has the credit of carrying out the fastest implementation of Flexcube, and was able to offer services to customers through all its delivery channels right from day one,” boasts Kathpalia. The implementations were designed in such a manner that they followed a customer- and solution-centric approach rather than a product-centric approach.

The bank has adopted Base 24 switches for all its ATMs—an integrated electronic funds transfer (EFT) processing and switching system that manages the functioning of ATM devices, transaction routing and authorisation, management reporting, network control, etc. Additionally, KM tied up with UTI Bank for its ATM facility, a move that instantly spread KM’s ATM network to over 850 locations. Further, customers are provided the facility of using their global debit card at all other Visa ATMs for a nominal fee. This facility gives customers the option of withdrawing cash at 4,500 ATMs in India and over eight lakh ATMs worldwide.

“KM uses Reuters for carrying out its treasury front and mid-office operations, and Synergy Login’s ITMS (Integrated Treasury Management System) for treasury back-office automation,” reveals Arora. ITMS caters to the debt, money and foreign exchange operations of the bank, and also ensures straight-through processing, which means that a deal once entered in the front office passes through all stages of operations without needing to be re-entered.

KM recently launched FundsToHome, a service for NRIs that uses a Web interface to carry out online remittances through Direct Debit, which uses the Automated Clearing House platform in the US. Additionally, the bank plans to open about 15-18 branches and 25-30 ATMs across 8-10 cities by March 2004 (and more in 15 cities by March 2005), all supported on the Flexcube platform.With a robust IT infrastructure that supports its rapidly-increasing customer base—about 3,000 per month—Kotak Mahindra Bank is now all set to churn out newer products on its core banking platform.

chitra@expresscomputeronline.com