Infosys Foresees Domestic Savings Surge Into Banks

Infosys Technologies Ltd has predicted that gross domestic savings will flow primarily to bank deposits in the next four years on account of lack of suitable alternatives, doubling the level of deposits to Rs 10,00,000 crore by 2001.

In a report on Indian banking and information technology (IT) presented before various forums within the government and outside _ including the Narasimham panel _ by Infosys deputy managing director Nandan M Nilekani, the company has also warned that the high spreads enjoyed by banks from lending and treasury operations will fall to international levels by 2001. Infosys is likely to be invited to make the presentation before the finance ministry.

The report also points out that applying the Pareto principle, Indian banks need not computerise all the branches _ only 20 per cent of their branches need to be computerised as these branches would cover 66 per cent of deposits and 75 per cent of advances". "Key business objectives like spread and costs must be looked at to drive the IT strategy," says Nilekani. The average spreads in India is the highest compared to Australia, Germany, Japan, Switzerland and the UK. Foreign banks in India maintain the highest spread of about five per cent, followed by private sector banks around 3.7 per cent and public sector banks about three per cent. In the international arena, British banks earn the highest spread of about 2.5 per cent, while the lowest earned is by Japanese banks of about 1.3 per cent. On strategic business planning, the report says that the key issue is on finding the "right size" of employee strength, and it forecasts that per capita employee cost will only continue to rise instead of declining.

Employee strength is expected to reduce only by voluntary retirement and natural attrition. In fact, employee costs as a percentage of non-interest expenses of public sector banks have been on the rise since 1993-94. It has gone up from about 68 per cent in 1993-94 to about 74 per cent in 1995-96.

Hence, foreign banks on account of low employee costs have reported near-doubling of productivity per employee during 1992-96, while public sector banks have registered only a marginal rise during the period.

On IT in banks, the report says, "following the Moore's Law, computers will become more powerful and cheaper and communication will become cheaper and the bandwidth available will increase. Networks will become more popular and will exponentially increase the power of computers". This may lead to a decline in IT costs even as employee costs increase. But even in the area of IT, spending in the area of software will increase while it will decrease for hardware. Further, out-sourcing will increase at a faster rate than ever before _ causing banks to depend on a few trusted, long-term IT partners, according to the report. The report also visualises the various stages in the development of banking software leading ultimately to electronic bill payment and Interment payment schemes for credit cards and cheques.