The Hindu Business Line : Federal Bank move on core banking solution draws flak

THE decision by the Federal Bank board of directors to outsource core banking solutions has come in for sharp criticism from a section of the bank's employees.

They pointed out that the in-house developed software package, FedSoft, which the bank has been using all these years could be suitably upgraded to provide core banking solutions (CBS) as well. The induction of outside agencies and introduction of new software would result in duplication of effort, time and money, they contended.

In fact, an internal study conducted by Federal Bank pointed out that the bank had made a total investment of close to Rs 100 crore in the IT project. "Anywhere Banking and Visa Debit Card interface modules were developed and integrated with FedSoft smoothly, demonstrating the flexibility and robustness of our back-end solutions for any future enhancement in functionality."

Various new products such as online ATM network, tele-banking, Internet banking, mobile banking have all been successfully incorporated into this backbone. And more recently, the bank has also extended real-time gross settlement system on the same platform.

An evaluation by Wipro on FedSoft had said that incorporation of CBS might not be easy. But the internal study had also pointed out that earlier experiments by the bank to outsource IT solutions had been unsatisfactory. In an information systems audit of the bank, PricewaterhouseCoopers has noted the strong technical team, secure ATM infrastructure, safe demilitarised zone and existence of comprehensive documentation for in-house developed applications as being major strengths of the in-house built IT platform.

It is based on the strengths of the existing information systems that a section of the employees have questioned the board's decision to outsource CBS. They have even alleged a motive behind the move. They said that ICICI Infotech has expressed interest in the project. This, they said, could be used as a stepping-stone to gain control of the bank.

Senior sources in the bank, however, said that all that has been decided is to outsource CBS and no written applications had been sought for the project nor received so far. An official for ICICI Infotech said that if at all the company made a bid for the project it would be a clean and transparent process with no external compulsions.

ICICI Bank refutes reports

ICICI Bank has said in a press release that reports on ICICI Bank seeking to acquire control of Federal Bank have no basis and are incorrect.

The bank reiterated that its role in the Federal Bank continued to be that of an institutional shareholder, committed to the best practices in governance with no participation in executive management.

ubsequent to the RBI circular dated July 6, requiring banks not to hold more than 5 per cent stake in another bank, ICICI Bank has already informed the RBI of its intention to reduce its shareholding in Federal Bank to 5 per cent in a definite timeframe, according to the release.

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