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By Ravi Pratap Singh, Executive Director and President – Products, Nucleus Software
The Indian banking industry is facing considerable challenges right now. Firstly, the levels of Non-Performing Assets (NPAs) are rising andfast becoming a crisis, especially for public sector banks. The numbers are staggering. Twenty-nine state-owned banks wrote off a total of Rs. 1.14 lakh crore of bad debts between 2013 and 2015. This is more than the amount written off in the preceding nine years. Needless to say, this has had a significant impact on their profitability.
At the same time, banks need to deal with changing customer expectations driven by the digital revolution. India has over 200 million mobile internet users who shop, watch movies and chat online. Not only do they expect to be able to bank online, but they demand a seamless experience across devices and channels. With little differentiation in products, superior customer experience is a critical driver for competitive advantage. However the current infrastructure places severe limitations on banks’ abilities to deliver outstanding customer experiences.
The gap has also spawned a host of financial technology start-ups. Powered by advanced technologies and agile business models the fintechs are growing rapidly, delivering disruptive services that thrive on superior customer engagement. These companies present a real threat to banks because they can potentially eat away a significant chunk of their revenue.And this is where cloud computing comes in.
Cloud technology can help banks improve profitability while also transforming their customer engagement model. By providing nearly unlimited hardware and software resources on a pay-as-you-go basis over the Internet, cloud computing drives down costs and enables innovation. Cloud also gives banks the ability to respond quickly to changing market, customer and technological needs, which is an important competitive edge.
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In addition, the combination of potentially unconstrained computing power and big data facilitates data mining and analytics, that provides banks with better insights into their.
There are numerous examples from across the globe of how banks have successfully used the cloud to drive greater operational efficiency, reduce time-to-market for new products, provide better customer engagement, improve productivity and consequently achieve greater profitability. For example, Citibank Wealth Management, a division of Citi’s consumer banking sector, replaced its fragmented CRM system with a unified cloud based solution, which provided an easy-to-access 360 degree view of the customer. Not only did this help the bank improve efficiency and focus on its core competency, it also resulted in greater client satisfaction.
But despite its growing popularity, Indian banks have been quite conservative about cloud adoption. Primarily, security and regulatory compliance have been the biggest roadblocks when it comes to cloud adoption. Given that information security is paramount for the BFSI industry, banks have taken a ‘wait and watch’ approach on cloud computing. With established policies, standards and technology in place now, security of cloud data is not as big a concern as it was five years ago.
Additionally, Indian banks need to adhere to strict compliance guidelines regarding cross border flow of banking data and geographical location of datacenters etc. In the past, most cloud datacenters were located outside of India historically,but this is changing with several industry majors announcing datacenters in India. For example, last year, Microsoft and IBM launched their datacenters in India. Recently, Amazon Web Services also launched its datacenter in India and others are likely to follow suit.
Banks can also think about a private cloud for sensitive data, which can help banks accrue the benefits of the cloud without compromising on security or compliance. Yes Bank is a great example. It moved all its applications to a private cloud way back in 2011, and results are already visible. It is now India’s fifth largest private sector bank.
Despite all the challenges, the banking industry in India has tremendous potential for growth. Our country has a large ‘unbanked’ population of people, which stands at 233 million according to a recent report by PwC. The government financial inclusion schemes such as Pradhan Mantri Jan-DhanYojana (PMJDY) have helped more than 180 million people in India enter the financial mainstream in the recent past.
As this trend continues, the onus will be on the banking sector to scale seamlessly to accommodate this influx but also provide superior customer service to each customer. Most Indian banks are still ‘on the fence’ when it comes to adoption of cloud computing. However, the benefits that cloud brings are making it increasingly attractive for Indian banks. It is only a matter of time now before the cloud will be viewed less as an option and more as a business imperative by the banking industry.
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