Banks chary of outsourcing full technology needs

Bank of India's (BoI) $150 million information technology outsourcing deal with Hewlett-Packard may remain one of its kind in the Indian banking industry.

Other banks are not too willing to bite the bullet as such outsourcing deals, they fear, will lead to loss of control over their database.

Some of the senior bankers even feel that the system will collapse if banks opt for outsourcing of its entire IT requirement lock, stock and barrel.

ICICI Bank, IDBI Bank, Bank of Baroda, Union Bank of India and IndusInd Bank have all shown concern over the potential collapse of the entire system in the event of the vendor-client relationship souring.

This is contradictory to the global practices where banks are outsourcing their IT-related services to countries like India.

Bank of Baroda general manager and chief technology officer V Chandrasekhar told Business Standard that anything strategic to the bank should not be outsourced.

IT outsourcing is not very popular among banks as it limits the development of skill within the organisation, he said.

Another banker, under the condition of anonymity, said banks would not want a third party (vendor) to dictate what should be the company policy.

"Banks are not very comfortable sharing their database with a third party. There are also the aspects of accountability and security," he said.

Senior bankers predict that over the next 10 years, banks will spend around Rs 15,000 crore on IT and related fields. Some banks could spend over 10 per cent of their capital.

Indeed, State Bank of India (SBI) is planning to spend Rs 500 crore in the next two years, Union Bank of India Rs 150 crore, Bank of Baroda Rs 500 crore, Punjab National Bank Rs 276 crore, Corporation Bank Rs 250 crore and Bank of India over Rs 200 crore.

In short, just six banks will together spend over Rs 1,876 crore. However, GPV Rao, senior vice president, IT, IndusInd Bank, has a different view.

He said if any vendor is capable of providing technical, security and functional services in a cost-effective manner, the banks should not be averse to the idea of outsourcing.

IndusInd Bank is running its core banking, business continuity and disaster recovery solutions using MIMIX and other applications on IBM eServer iSeries 870 & 825.

Some private sector banks like IDBI Bank have outsourced their business to different vendors. IDBI Bank outsources its day-to-day operations and facility management to various service providers.

Facility management is maintained by ACCEL ICIM, network management by Netsol and database management by Clover Technologies.

Sanjay Sharma, head, IT, IDBI Bank, said outsourcing technology from different vendors helps the customer opt for the best at a negotiable price.

With multiple vendors, the bank is also able to keep the control with it. This is not the case if the bank chooses a single vendor for the entire outsourcing package.