Bank automation -- It's a hold-up

Dr. V.B. Kaujalgi

IT is time to review the working of public sector banks (PSBs) as far as bank automation is concerned. Old private banks, which were not nationalised in the mid-seventies, or new private banks set up after liberalisation of the banking sector alongside multinational banks doing business in India are not in the purview of this study as also cooperative banks.

Most PSBs started computerisation of branches based on the Rangarajan Committee report in the eighties, going in for simple, isolated applications at branch level. Most of the applications were based on DOS or UNIX computers and used either COBOL or simple packages such as dBASE, FOXPRO etc. This was the learning phase of bank automation in India.

Today, different types of computer packages offering ``Total Branch Automation (TBA)'' are available to automate the various activities of a typical branch. However, there is still a fair degree of confusion about what exactly TBA means, according to a sample survey of CPPD heads of the National Institute of Bank Management, Pune.

Troubled present

One can identify some of the problems in bank automation in today's scenario thus:

Islands of applications in the branches of a bank, with dissimilar computers, operating systems and application packages. There is no integration of such applications. The interest calculation package may be different from the regular package with SB, CA, FD accounts. Partial manual processing is necessitated if a report is required from more than one isolated application.

Some PSBs have more than one dissimilar TBA package from different vendors. Though the solution looked attractive in the late eighties and early nineties, now it has created serious problems for inter-branch communications within a bank.

Most PSBs have TBA software packages running on outdated technologies, though the packages were the best available when the PSBs selected them.

Already, a large number of branches are using obsolete packages and the question is, how does one get out of this difficult situation? The RBI and the CVC are also responsible, in some measure, as they kept up pressure on banks to boost computer usage. Information technology is ever-evolving and PSBs require an intelligent technology upgradation plan to make sure that their investments will at least break even in three years.

Computerising manual systems is a general trend. Managers, typically, are busy people and a computerisation initiative makes extra demands on a manager's time. He may simply tell the systems man to go ahead with computerisation without studying the processes involved. A hasty decision on the kind of technology required may result in more expenditure and an inefficient system.

More manpower requirement because some PSBs have parallel manual and computerised systems. This is a `least risk' strategy for the bankers. The bank may have to double spending on computerisation projects.

The database created by transactions at branch level is backed up periodically and stored in the cupboard to make disc space available for the next period. This is hardly made use of by the bank except to produce some mandatory report (which, perhaps, nobody looks at seriously). It is not used by middle and strategic-level managers, even though such data is a gold mine for effective decision-making. Recent trends in effective information design call for varied, easy approaches to help managers make use of such data.

The top management of PSBs has also created serious problems in computerisation. The decision-makers have relatively short appointments, ranging from one to three years. Why commit to large expenditure on IT now? Why not postpone the automation? -- Such a decision is typical of a PSB because of the top management's limited knowledge of IT and its complexity.

For a smooth transition

The IT applications banks may opt for in the future will become complex for some of the following reasons:

Bank automation will be networked so that bankers and customers can access the different applications of the bank. Such applications, based on integrating various functionalities, call for complex software development projects.

Besides dial-up leased lines and satellites, the Internet will play an important role and Internet banking will gain in popularity. With advances in communication, such an approach may be cost-effective for developing countries.

Most of the new bank products will be based on networked environments. Hence there will be new products using IT, such as mobile computing.

Investment in IT should boost a bank's profitability. Most banks have a list of available technologies. Their relevance depends on the bank's business strategy. Otherwise, a large sum is spent on implementing a specific IT project without much addition to the profitability of operations and customer satisfaction.

Data created by the various transactions of a bank should be available to middle and top-level managers and executives for effective decision-making using the popular concepts of Decision Support Systems (DSS), Executive Information System (EIS), Expert Systems (ES), Data Warehouse (D/W), Data Mining (D/M) etc.

Future perfect

Banks need to draw up a well-defined business plan looking 3-5 years ahead. It must be updated at least semi-annually. There are a number of techniques to help the top management evolve a suitable business plan for the bank, including SWOT, Porter's Five Force Model, Value Chain, Strategic Grid, Balanced Score Card, Core Competence and Critical Success Factors.

The next step is to identify important IT applications based on the business plan. It is then relatively easy to identify gaps in the present IT applications, which are running, and applications that might be required in the future. They can be formulated as well-defined projects and prioritised, leading to an IT-plan for at least the next 2-3 years.

Such a plan requires periodic updation, preferably at the same time that the business plan is updated. Such a plan also gives a budget profile for future IT-applications which are in conformity with the business plan.

Such a budget proposal is also acceptable to the top management because it is based on a business plan in which they were involved during formulation.

The author is Professor, IIM, Bangalore, and may be reached at kaujalgi@iimb.ernet.in

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