Banks' IT spending to surge 50% to Rs 10,000 cr annually

As Indian banks gear up for the second wave of technological enhancement, their spending is likely to shoot, a little over fifty per cent, to Rs 10,000 crore annually.

According to The Boston Consulting Group (BCG), the current expenditure on information technology (IT) for banks on the whole is Rs 6,500 crore per year, about 2.7 per cent of their revenues. The first phase of IT upgradation largely included migration of banks to a core banking system, which allowed for consolidation of banking services offered across regions and channels.

“We expect Indian banks’ IT expenditure to touch Rs 10,000 crore annually in four to five years as they get ready for their second wave of IT investments,” said Saurabh Tripathi, partner and director, BCG.

Currently, the IT spending of public sector banks, which form a major chunk of the banking sector is about 62 per cent of the total spending on technology by all banks. According to bankers, the increase in IT spend is likely to benefit them in the long term. The major areas of thrust will be automated data storage, compilation, upgradation and analysis, along with automated decision making that will involve loan sanctions as well.

“Indian Bank is working to move towards the Client Relationship Model (CRM), which will allow comprehensive data analysis and decision making without manual intervention. Once we fully migrate to the CRM model, we will be able to increase the customer base by 30 per cent through comprehensive customer profiling and servicing,” said T M Bhasin, chairman & managing director. Indian Bank spent Rs 55 crore on technology last financial year and expects the total IT expenditure to be around Rs 92 crore this financial year.

M V Nair, chairman and managing director of Union Bank of India, said, “We need to catch up fast with IT improvisation to save costs and improve customer experience.”

Most banks are now looking to enhance customer experience, as well as return on investment (ROI) simultaneously through technology after they have fulfilled the minimum core banking requirements.

The Reserve Bank of India (RBI) has also laid ample emphasis on IT upgrade of the banks and come up with IT Vision 2011-17 for the financial sector. “In the banking industry, use of information technology is omnipresent. The Vision Document also sets priorities for commercial banks to move forward from their core banking solutions to enhanced use of IT in areas like management information systems, regulatory reporting, overall risk management, financial inclusion and customer relationship management,” K C Chakrabarty, deputy governor of RBI said in a recent speech.

However, experts said banks also need to look at return on their investment in information technology.

“For the next wave of IT investments, an ROI framework is crucial. For this, the whole approach for IT projects has to undergo a dramatic change. It needs to start with identification of business value and IT projects have to justify themselves by bottom line value created in lower costs or higher revenues,” Tripathi of BCG said.

Although Indian banks are increasingly looking to spend on technology in the coming years, their expenditure remains quite low as compared to developed economies.

“Overall, the industry spends 2.7 per cent of its revenues on technology – including capital expenditure, operating expenditure and specialist employee costs. Globally, this number is as high as nine per cent. Part of the reason is that Indian industry has to move to a more value-added role of technology,” BCG said.