TRANSFORMERS CASE STUDY
An IDG Custom SOLUTIONS initiative IN ASSOCIATION WITH
Transforming Business Through Judicious Application of IT
PLUS Cheque processing has evolved from being a cumbersome and time consuming task to become efficient, paperless and even profitable. Yes Bank embraced a hosted solution to implement Cheque Truncation Services (CTS), striking a balance between cost and operational efficiency.
INTERVIEW Subhakanta Satpathy, Sr.VP and Chief – IT, Axis Bank, speaks about the evolution in the CIO’s role and what one must do to stay ahead in the race.
TRANSFORMERS CASE STUDY
Clearing Cheques Company Yes Bank Industry Banking Offering Corporate Banking, Investment Banking, and Personal Banking services across India
on The Cloud Cheque processing has evolved from being a cumbersome and time consuming task to become efficient, paperless and even profitable. Yes Bank embraced a hosted solution
to implement Cheque Truncation Services (CTS),
striking a balance between cost and operational efficiency.
TRANSFORMERS CASE STUDY
O
ver the past few decades, banks have mastered the art of processing paper cheques. Indian banks process about 1.2 billion cheques annually. The National Capital Region (NCR) alone processes 6,00,000 cheques a day, while countries such as Singapore clear 4,00,000 instruments daily. However, banks are now ready, even eager, to get to the world of all-electronic payments.
Business Scenario and regulatory mandate Despite the comparative ease of use of debit cards and internet banking that offer electronic modes of money transfer and making payments through National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS), cheque transactions are here to stay. According to reports released by the Reserve Bank of India (RBI), the total value of transactions through cheques across the country amounted to Rs 8.17 lakh crore in December 2011. In fact, Delhi and Bangalore reported a rise in the value of clearances last fiscal year. Commercial customers continue to issue and get cleared a large volume of paper cheques as part of their routine business. However, the overall value of cheque transactions in India declined by 2.6 per cent year-on-year to Rs 101.33 lakh crore in 2010-11. Since cheques remain a popular form of payment, RBI continues to classify paper clearings as a System-Wide Important Payment System (SWIPS) due to the high volumes of transactions.
Cheque Truncation System Goes Live In order to enable banks to clear cheques faster, RBI implemented the Cheque Truncation System (CTS) in NCR, on a pilot basis. This resulted in increased operational efficiency by cutting down on overheads in physical cheque clearing by using the cheque image and MICR data. The cheque image is truncated at the presenting bank. Subsequently, the cheque image moves through various steps in the cheque-clearing cycle and transactions are settled on the basis of images and the data.
We chose the cloud hosted model because it is not just more economical, but also extremely efficient and scalable.” Surendra Shetty, President and Deputy CIO, Yes Bank
This has not only helped in avoiding human errors but has also immensely helped the bank to do their reconciliation more efficiently.
Yes Bank’s Initial steps for CTS mandate Yes Bank, India’s fourth largest private sector bank, was looking for an efficient and costeffective solution to meet the demand for clearing a rising number of cheques. Though the Bank was a late entrant, compared with other private sector banks, it has witnessed an unprecedented level of growth since it started operations in late 2004. Mr. Surendra Shetty, President and Deputy CIO, Yes Bank, commonly known as Suren said ““We needed to ensure that our customers get the best-suited, customized and affordable banking solutions and products. For YES Bank to compete with well-established public, private and co-operative banks, we recognized the competitive edge technology would bring about, quite early in our life cycle, and used it to differentiate our proposition.
1.2 billion
cheques are processed by Indian Banks annually.
right model and approach In early 2006, when Yes Bank implemented CTS in the Na-
TRANSFORMERS CASE STUDY
tional Capital Region, it was essentially to meet the regulatory requirements mandated by RBI. “Internally, we were debating whether we should implement cheque truncation even before receiving the RBI mandate. But our volumes did not justify the need for setting up a complete infrastructure. Hence, we created an in-house solution. We also considered implementing CTS in other branches across the country, in order to realize economy of scale and process efficiency.” says Suren. With the successful rollout of CTS in the NCR, RBI had set-up the next mandate for Chennai grid roll-out of CTS in 2011 with plans for pan India expansion subsequently. RBI also mandated and emphasized the need for cheque truncation through the NPCI (National Payments Corporation of India). The management at Yes Bank debated if they should implement the project in-house or outsource the implementation. According to Suren, “We
101.33 lakh crore
rupees was the total value of transactions through cheques in 2010-11.
did a cost and efficiency comparison of implementing these processes in-house or going for a cloud-hosted model. Finally, the outsourced model was opted because it was not only more economical but also extremely efficient and scalable.”
Deciding the right partner and Solution
W i t h c le a r i n g o p e ra t i o n s becoming a specialized service, there was a requirement for a central archival solution for easy image storage and retrieval. Also, timely and accurate processing of cheques for quick fund realization and high customer satisfaction was critical. Yes Bank was looking for a partner with a vast experience in the banking sector in India and globally. The key requirement was to enable a unified shared services based model for technology and operations, to perform end-to-end operations in the clearing process. “The solution should not
Solution Offerings Outward Processing
Inward Processing
scan and capture
Download of files from rbi
Data entry
Clearing house interface (chi)
Technical validation of cheque image
Data entry
File creation and submission for rbi
echnical validations on cheque image T (bank, signature availability, date, amount (lar/car)
Providing posting files to the bank
Online storage & retrieval
Returns processing
Providing inward “files to bank”
Online storage and retrieval
Return file creation
Re-presentment
Reports (mis, audit, statutory / regulatory)
TRANSFORMERS CASE STUDY
only cater to the current volume requirements but also be scalable to meet our aggressive volume projections and extendable to all the regions at national level, “says Suren. After evaluating several vendors, Yes Bank opted for the web-based model provided by TCS. “Our philosophy has always been ‘outsource what is not core’ as it is more challenging to build in-house expertise for non-core business processes,” says Suren. The fact that the solution was available on a pay-per-use model based on the number of cheques processed was critical. “When we started discussions with the service providers, the volume was just around 800 cheques per day because our retail scale was not very high,”says Suren. The solution opted was a customized package to suit the multiple processes and requirements of Yes Bank. “The highlight of this solution is that it is a scalable business and technology solution with rich MIS features. It also has the ability to archive images online, making it extremely flexible. The solution easily interfaces with our core banking solution. This solution is deployed on the TCS cloud, at a Tier III datacenter with the availability of a DR as well, which is an added advantage. ” says Suren.
Reaping the benefits of the transformation The complete solution provided by TCS can be deployed quickly, with minimal changes to go live. It is centralized, web-based and remotely accessible and does not require any software to be installed at the user end. The architecture gives the flexibility to the bank to start with deployment initially for one region and gradually scale up to roll out at a national level. “We do not need to deploy or install any hardware or software at our premise and only connect to the CTS application through a browser for performing the operations involved with clearing cheques. Also, it does not require any direct capital investment on hardware or software which usually hinders scalability in the future,” says Suren. Another benefit of CTS is the removal of paper from the system, leading to reduced costs and increased processing efficiency. Cheque imaging also helps reduce fraud losses by providing earlier notification and faster identification of fraud while minimizing operational risk by securing the
transmission route. The system has also reduced the time and manpower required at a service branch or a branch manning these activities through human interface. Transportation costs, except for some limited number of physical items, are also significantly reduced.
What Next The new approach envisioned as part of the national roll out is grid-based. Under this approach the entire cheque volume in the country cleared across numerous locations will be consolidated into a fewer number, comprising of five or six grids. Each grid will provide processing and clearing services to all the centres under its jurisdiction, which could involve an entire state or a group of contiguous states as well. Banks, branches and customers based at small or remote locations falling under the geographical jurisdiction of a grid would be benefitted, irrespective of whether there exists, at present, a formal arrangement for cheque clearing or otherwise. “The Chennai grid presently introduced and once fully operational, will not be confined to the city of Chennai alone, but will cover as many as 17 MICR centres and ECCS centres managed and operated by other banks as also areas where clearing infrastructure is unavailable in the states of Karnataka, Kerala and Tamil Nadu,” says Suren. “The potential benefits include enabling the Bank to introduce new product and re-engineering the total receipts and payments mechanism of the customers,” he adds. With this system in place, Yes Bank is looking to add more offerings based on the cloud hosted CTS solution. Large corporate houses and government agencies, which transact in a large number of cheques, could have tie-ups with their banks. Instead of sending the physical cheques, they can send scanned images to the branch concerned, which would then forward it to the RBI for settlement. The truncation can also be done at ATMs. You could send the image of the cheque by inserting it in the machine. The captured image will be sent to the service branch for settlement and clearing. Customers would get a receipt. “There are many possibilities, and the sky is the limit when it comes to implementing these ideas, provided they are justified by the business,” concludes Suren.
TRANSFORMERS INTERVIEW
Survival of the Fittest The role and responsibilities of CIOs are not confined to managing IT anymore. Their new role requires them to acclimatize themselves to the changing business dynamics and evolve accordingly, opines
Subhakanta Satpathy, Sr. VP and Chief – IT, Axis Bank.
Subhakanta Satpathy
Sr. VP and Chief – IT, Axis Bank
TRANSFORMERS CASE STUDY
Essential aspects of IT infrastructure are offered as a service today: namely, IaaS, PaaS and SaaS among others. Which of these is most relevant to the BFSI sector and how can banks and financial organizations leverage them to realize business benefits? This whole technology as a service offering trend is indeed gaining traction in the BFSI vertical. Particularly, there is significant adaptation of PaaS in the banking sector where smaller banks and cooperative banks have obtained Core Banking Solutions on this model. I foresee some adoption of IaaS in coming years to handle turnaround time (TAT) for new projects, and to set up test and user acceptance testing (UAT) environment. However, the high cost of IaaS is still a concern and it will take some more time – at least three or more years – to see industry-wide adoption of the technology. With regards to SaaS, there are not many BFSI-specific services or models on the horizon yet. Some industry experts believe that with the advent of cloud computing and other technologies which enable outsourcing, the need for IT expertise might go down gradually. How will this transformation impact the role of CIOs? The way of managing technology is evolving as fast as the advancement in technology itself. Today, it is imperative for CIOs to be well-versed and knowledgeable in business parlance and dynamics. The debate on whether CIOs should don the hats of CFOs as well is still wide open. Regardless of one’s opinion on this, it is true that CIOs will have to evolve in their roles. Right now, the role and responsibility of CIOs is shifting from enabling IT to enabling business. This is to the CIO’s advantage as it provides him/her the opportunity to gain business knowledge and think tactically. The CIO’s role will not be limited to managing IT anymore. What technological trends according to you will propel IT’s role in BFSI to greater heights in the coming years? Different channels of delivery such as internet banking, ATM, mobile banking and kiosk are becoming increasingly crucial. The ability to significantly improve on self-service capabilities, sell and cross-sell products and be able to complete the sale on the channel, enable personalized capability v/s generic capability on the channels, provide similar experience across all channels on functionality and response time will be the primary game-changers of tomorrow. This ability will play a crucial role in improving brand positioning as well. Consequently, a good CRM system is the best complementing technology for the delivery channel. Without a CRM, the capability to provide differential service on channel will be affected. Another area banks have to look into keenly is the modes of payment. Having an enterprise-level unified payment infrastructure is key to handle the increasing electronic payments including B2B, B2C and C2C among others. Finally, banks must also consider transforming their fundamental way of operating. Most of the existing processes are, in reality, manual processes which have been forcibly fitted
into the IT environment. In order to drive process efficiency and improve on TAT, organizations will have to invest in business process re-engineering (BPR) to truly unlock IT’s potential. Adaptation of BPM platform to drive the re-engineered process will drive efficiency and TAT, and reduce cost significantly. All these are not easy to implement and one will certainly face many challenges and delays. Those who have the maturity and resources will succeed in positioning their organization in a different orbit. How important are business intelligence (BI), analytics and data warehousing in the BFSI sector? How do they add value to business? Having a pragmatic BI strategy is most important. Analytics has the power to redefine risk, business model of the future and has all potential locked inside on products and their delivery strategy. It requires a matured strategy to unlock the true potential of BI and put it to use. There are two challenges with regards to BI: namely, availability of the right data attributes in enterprise and having a low risk approach to implement a data warehouse. These challenges have to be dealt with carefully, failing which the whole project is prone to become unfruitful. It has been more than a year since your collaborative effort with TCS on axisdirect.in went live. What has been the response from your business stakeholders and customers? What kind of business benefits have you seen? Customer and stakeholder expectations are always high when an organization embarks on a high profile initiative or new technology implementation. The same applied to us when we started building an integrated trading cum information portal, which is a complex exercise in itself. We knew right from the beginning that the system had to give us great RoI in order to justify the heavy investments we made. We are very glad that our efforts have yielded us the kind of business benefits we expected. We have received very positive response from customers for the axisdirect.in portal. This online trading cum investment platform has allowed Axis Bank to deepen its relationship with its customers and address their investment needs in a holistic manner.
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