Future of Internet Banking In India
"We are not a bank anymore, we are a financial services organisation"-C.N.Ram,HDFC Bank
(HDFC Bank today enjoys a reputation of being India's most aggressive and technology-savvy bank. Much of that credit goes to Mr. C. N. Ram, HDFC Bank's Sr. VP and Head of Information Technology.
A graduate from the IIT Madras and a post graduate from the Indian Institute of Management, Mr. Ram started as a graduate trainee with Tata Steel. Thereafter he had a twelve year long stint with the Bank of America between 1982 to 1994. At present, he is Sr. VP and Head-Information Technology, HDFC Bank.
Not surprisingly, Bill Gates Chairman, Microsoft and Eric Schmidt Chairman and CEO Novell Inc. are the people who have impressed Mr. Ram the most. 'The Autobiography of the Yogi' by Parmanand Yogi is one of his favourite books.
In an interview to equitymaster he spoke about the future of Internet banking in India and the prospects of HDFC Bank in particular)
EQM: When do you anticipate that India will have a fully wired network, at the national level, enabling a seamless transfer of funds electronically across the entire banking system?
Mr. Ram: When you talk of the entire infrastructure including the central bank i.e. the Reserve Bank of India, I would imagine it's not more than two years away. This is because RBI is talking very seriously about things like RTGS-Real Time Gross Settlement, which means every transaction that is there between two banks and ultimately between two customers of two banks, it will get settled in real time. Lets say you initiate a transaction with your bank and I with my bank that transaction will get completed in real time through our systems and the centralised clearing of RBI. That I would imagine will be in place within two years.
EQM: Do you envision a time when brick and mortar banking might disappear totally?
Mr. Ram: No. I don't think there will ever be a time when the brick and mortar will disappear. Because you still need some outlets for customers to take cash, unless cash disappears. There has to be some dealing with the branch. But the number of branches will never go to 11,000 branches of an SBI or I've heard of a bank in China that has 65,000 branches. That will definitely be a...
EQM: ...a drag?
Mr. Ram: Yes, it will be, because when you have a means to service your customers at the least cost and the most convenient mode why would you spurn that. You will go with the Internet. The Internet ultimately is going to be the mechanism through which most of the services are going to be delivered. The brick is definitely going to be there. The click will be for servicing, because the customers prefer that.
EQM: What has been the biggest challenge as far as integration of the Times Bank systems (with your systems) are concerned?
Mr. Ram: Nothing much. We went into it with an open mind. We said we'll take both our systems, evaluate them and see which of them is a better fit for the future. So clearly our systems came up on top. We are talking of converting all the accounts that are there on Capiti to Finware, our back office systems.
The only challenge is really in terms of the platform. While their platform was on an AS400 platform, our systems were Unix based. Its always possible to get a report out and do things manually but we want to have an automated conversion which can have a clear demarcation time. So that we can tell our customers that beginning this date this is your new account number, your new cheque book, your new ATM card.
EQM: As a percentage of the total expenditure what is the amount spent on technology by your bank and to what level do you see this figure growing to over the next year or two?
Mr. Ram: We've spent around Rs 500 million on technology over the past five years. But I'd say that technology is a part of the operating expenditure itself. It is a vehicle for driving our business whether we talk about e-commerce initiative, whether we talk about B2B, B2C. It's technology, which is enabling that business itself to take off.
Now we are talking about being able to participate in the client's business itself. You are a manufacturer, you have payments to be made to your suppliers, you have payments to be received from your dealers. We are saying that as a bank we will stand in front and enable all this to happen. So we look at technology as an enabler for a variety of our new business initiatives.
EQM: Could you elaborate on your efforts to provide a supply chain management and a payment gateway for your corporate customers.
Mr. Ram: What is currently possible with the scenario in India without the automation in terms of the payment systems, it is possible for us to tie in the supplier, manufacturer and the dealer together, whether he has a value chain already developed or yet to be developed, to a payment mechanism. That means all these people should have an account with the HDFC Bank, whatever payments are done amongst these people would all be account transfers, which they will originate.
So we give them a browser based access on the Internet and transfer all the responsibility for the actual moving of funds to the bank. So we have a mechanism to make sure that the access is authenticated, so we know who is actually originating these transactions and the fact that all of them have accounts with us enables us to just transfer money from one account to the other. It's a typical banking transaction.
EQM: Suppose one of the parties is not a member of your bank?
Mr. Ram: As long as he is the person who is receiving the payment there's no problem because we have mechanisms where we can issue him a cheque or a draft based on one of the customers who is with the bank. If he is somebody who is originating the payment then he has to take recourse to signed instruments (cheques). There's no other way. But because we are a big cash management bank, we are actually second in the country today, that part of it is also possible. That means somebody can write a cheque for someone who is a customer of the bank, deposit it in the nearest branch of HDFC bank, we'll collect those funds and remit it to the receiver. We are actually moving Rs 600 bn a year in our cash management business. So that's something we can do very quickly.
EQM: Your portal HDFCbankshop.com...
Mr. Ram: Its coming up...
EQM:.... is reported to be having facilities for selling airline tickets, travel bookings, consumer durables, gift items onsite apart from financial products.
Mr. Ram: Anybody whom we can tie up with. Because our forte is in the payments area. So as long as we can complete the payments...
EQM: But are you aiming at becoming a virtual portal and how does this fit in with your core business of banking?
Mr. Ram: We are not a bank any more. We provide financial services. We are not just in the business of accepting deposits and paying out money. That's a very narrow definition of a bank. We are a financial services organisation. We sell mutual funds. We can sell almost any finance product that somebody wants. We advise people how their investments should be made. So there's a lot of value add that we perform apart from being just a bank. Which means that the natural extension of this on the Internet is a portal. If I can facilitate commerce between the two parties who are engaged and I can facilitate the funds transfer at the back end so that it facilitates the completion, then why not?
I have the capability, I have the customer base. We are sitting on top of almost 800,000 customers (which includes those of the Times Bank), the customer base is growing at the rate of 30,000 customers a month. We are going to hit a million very quickly. So why not a portal.
EQM: Of your retail deposit base of around 800,000 how many are online customers
Mr. Ram: I think we have close to 20,000 customers signed up on the Internet. And mind you we started only in September 1999.
EQM: What sort of growth targets do you anticipate?
Mr. Ram: I'd be really disappointed if it's less than 100,000 by the end of the year. More and more features are being added. Earlier the net itself featured only a few transactions. You could transfer money from one account to another. We have introduced bill payments for the last two weeks. We are talking about introducing third party payments on the Internet by next month. So except for taking cash, you can do all transaction on the Internet.
-EqM |
