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N.S.Vageesh

The bottomline, say the growing number of banks that are outsourcing functions, is business sense.

When we called up the chairman and managing director of a public sector bank for his bank's experience with outsourcing, he recoiled in horror. "Don't ask me anything about this. It's a sensitive issue. It will embarrass me and land me in a controversy," he said.

That was partly an expected response. Public sector banks have always been a trifle uneasy and circumspect when dealing with issues connected with their labour force.

Yet, it is not as though these banks have not taken the plunge into outsourcing jobs and services.

A few months ago, V. Leeladhar, then Chairman and Managing Director, Union Bank of India, had said that the time had come for banks to focus on their core business. He outlined areas that could be opened up for outsourcing, including information technology, data centre operations, maintenance, security, and cash movement.

He added, "It is being done in some banks, including ours, with the goodwill and expressed support of the unions." He did, however, caution that much depended on the rapport between the management and the unions. He added, "It can end any time."

Bank of India, another public sector bank, decided to outsource its information technology requirements. Asked to explain the logic behind this, M. Venugopalan, Chairman and Managing Director, says, "We have gone in for an outsourced IT model for two reasons. Firstly, I don't need to block my money in hardware. Secondly, whatever upgrades come, you get that automatically, and the same goes for software. We need not worry about annual maintenance contracts. My people will need to take care of only the operating part."

So how much did it cost the bank to go in for this kind of deal? Explains Venugopalan, "We have a 10-year contract with HP, which is the system integrator. It cost us Rs 50 crore a year for 750 branches. We have made roughly a 25 per cent saving because of outsourcing." The total saving will become evident a few years down the line, he adds. Did the public sector bank face opposition to these moves? The Bank of India CMD concedes that there were indeed some objections initially about why they had to be the first bank to do this. His explanation was: "Somebody has to start." He was able to convince his board of directors to give their approval. "In two years, the bank will be tech-savvy. We have to do this, if we are to retain customers, introduce new products and do more business," he says.

Private banks, especially newer ones, are relying heavily on the outsourcing model. Says H. Srikrishnan, Executive Director, Yes Bank, "Outsourcing allows us to focus on our core competencies and we leave the rest to specialists in the relevant fields. Our outsourcing will not be restricted to IT and operations. It will be extended to cover products, sales and distribution."

He adds that Yes Bank is about to finalise a deal for total outsourcing to a large IT partner, covering infrastructure, technology, networking and managed services. "The highlight of this deal is to keep IT assets off balance sheet, enabling total scalability and predictability of cash flows that is directly functional to the expansion of our branch coverage. For the other products in the corporate and retail areas, we are planning to enter into alliances to help us distribute products across locations through multiple channels."

What would he define as the core business of the bank? "Banks are meant to be in the business of taking risk, taking care of asset liability matching, managing cash-flows for clients and providing a one-stop shop for all financial services to a cross-section of clients," says Srikrishnan.

There is a flip side to this business of outsourcing by banks. Some of them have used this model to avoid responsibility and parcel out the dirty work. As in the case of a foreign bank, which earned notoriety for the strong-arm methods it used to recover credit card dues. The recovery of dues was "outsourced" to agents who pressurised defaulters to pay up. If the agents exceeded their limits and landed in trouble, the bank could always plead ignorance and keep its image unsoiled. But when the number of "embarrassing" incidents began to increase, the foreign bank just armed itself with one more weapon. It got a signed but undated letter acknowledging termination of its contract with the "recovery" agency. Whenever there was trouble, all that the bank had to do was fill in a date and wave it at questioners with renewed insouciance — "Their services were terminated a long time ago."

Picture by Bijoy Ghosh

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