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HDFC (Housing Development Finance Corporation) bank is one of the largest banks in India. It was incorporated after the RBI (Reserve Bank of India) allowed private banks to set up. It is regarded to be a part of the ‘big four’ banks of India along with ICICI, State Bank of India and Punjab National Bank. It was promoted by the financial company Housing Development Financial Corporation which is regarded as a premier financial company in India (established in 1977). HDFC bank boast of 1725 branches and estimated more than 4232 ATM’s in 779 cities across India with all branches linked online on real – time bases. It is headquartered in Mumbai, India. Mr Aditya Puri is Chairman of HDFC Bank and Mr Keki M Mistry is Vice – Chairman and CEO of HDFC.
The total income of HDFC bank has increased from 19622 Rs crores in 2009 to 19980 Rs crores in 2010 i.e. by 1.8 %. As far as the Net profit is concerned it has increased from 2245 Rs crores in 2009 to 2948 Rs crores in 2010 translating to 31% increase in net profit. HDFC Bank has total assets of 22458 Rs crores for year 2010.
Products offered by HDFC bank:
The various services that HDFC bank provides to its customer are:
Oracle Financial Services Software:
Oracle Financial Services Software Ltd. is the banking solutions provider to HDFC bank. The ERP software that was decided to be implemented at HDFC bank is called ‘FlexCube Core Banking’. The implementation of ERP software was carried out by i – flex Solutions Ltd which was acquired by Oracle Corp.
FlexCube Core Banking:
Oracle’s FlexCube claims to help the banks overcome stiff competition, reduction in margins and increase the customer satisfaction by creating a one of a kind advantage that is built upon improved profit margins and increase customer satisfaction. Oracle FlexCube allows the banks to gain straight – edge cost advantage over its competitors through its straight – through processing and problem handling. Also in addition to this solution supports the regulatory requirements that are prevalent in this market through highly secured data management system which is capable of supporting third party softwares. Oracle FLEXCUBE Core Banking’s application architecture supports agile and business processes management using Business Process Execution Language (BPEL), service-oriented architecture (SOA), and a Web services-based mode.
Reasons for ERP Implementation:
Problems with the old system:
HDFC bank was the first Indian bank to adopt I – Flex’s FlexCube Core Banking ERP. Some of the reasons why HDFC decided to implement ERP were:
HDFC wanted to migrate from its old ERP platform to a new one because after the expansion of HDFC the old platform was not capable of handling integrating and handling the new data.
The old platform that was present was not internet friendly. It failed to support the integration with new lines of data transfer like internet banking, mobile phone banking and payments, online card authorization etc.
It needed a much larger or robust platform and the availability of resources for any future developments and expansions.
There was also an inherent need for quicker time – to market for the products which were another fault with the old system. This was a very important point because of the cut – throat competition in ever expanding financial services market where introduction of new products and scheme is the order of the day.
Also HDFC bank had to change its business model and the operational model from de – centralized to centralize.
Also HDFC bank needed the standardized IT platform and infrastructure due to HDFC IT policies, requirements and operating procedures.
The old system had no option of being updated.
Also the old system failed to incorporate new schemes like flexible mortgages, customer loans and various types of deposits.
Real – time processing was not an option in the old system.
Inability to produce in short time sophisticated reporting and analysis both for internal and external usage.
Needs of HDFC bank:
HDFC started to scan the IT services market to find an ERP financial solutions package that would provide:
Rapid and non – tedious integration or interfaces that would be easy to use.
Better depth and breadth of the functioning capacity of system.
Quicker time to market for its new products.
A network solution that was recognized worldwide but also had a local presence in India so that it had the necessary experience and understanding of the Indian mind set.
Scope of the Implementation:
There were in particular two lines of business in which the system was initiated. They were:
National & International payments, SEPA compliance
Trade Finance – LC, LG, Bills, Collections
Treasury – FX, MM
Details of the project:
It was decided between I- flex and HDFC that Core Solution Stack in line with the banking financial solutions would be implemented. It was decide that Inntron would be the system integrator and implementer for the project with the technical assistance provided by I – Flex. It was decided that the relationship that should be sketched out between HDFC bank, I – Flex and Inntron should be back – to back or an independent contract i.e. there would be bi – lateral contracts between HDFC bank and Inntron, Inntron and I – Flex and HDFC and I – Flex. It was decided tom implement it on ASP basis.
Approach to implementation:
It was decided that a ‘Big Bang Approach’ with high stress testing and three mock drills would be carried out. The bank was already running on one system and splitting it into branches was difficult. Also splitting of national settlement, central bank reporting, reconciliation and consolidation would have been very difficult and resource hungry. This would have prolonged the time for implementation and contradict HDFC bank’s desire for full conversion and re-organization within 12 months.
High level time lines for different phases
PWT – 5 weeks – done by Inntron
GAP analysis – 6 weeks – done by Inntron
System initial set-up and parameterization – 14 weeks – done by Inntron
HW sizing and procurement (in parallel) – 13 weeks – done by IBM
IT infrastructure and comm. lines upgrade and set-up (in parallel) – 22 weeks – done by HDFC bank
System’s parameter and products testing – 12 weeks – done by Inntron and HDFC bank
Additional set-up and parameterization – 2 weeks – done by Inntron & i-flex
Systems Integration testing (incl. parameters and products) – 6 weeks – done by Inntron, i-flex and HDFC bank
Train the trainers (in parallel) – 4 weeks – done by Inntron
Mock migrations and stress testing – 6 weeks – done by Inntron, i-flex and HDFC bank
End user training (in parallel) – 7 weeks – done by HDFC bank
Post Go-live support – 8 weeks – done by Inntron & i-flex
For each phase
Deliverables of the phase – Documents and sign offs for each of the above phases
Resources (from i-flex as well as bank) involved – numbers, types (technical, functional, PM, testers, SME etc.)
i-flex technical – 10 man months
Inntron technical – 60 man months
Inntron functional – 80 man months
Inntron PM – 12 man months
HDFC bank PM – 12 man months
HDFC bank full time project team – 36 man months
HDFC bank part time project team – 90 man months
Oversight management strategies used
Project sponsors (bank’s CEO and COO) introduced
Project Steering Committee meeting fortnightly
Any bank specific step
Compliance with HDFC Indian standards
HDFC Indian QA and supervision
Data migration step:
High level steps involved – strategy, data mapping, utility preparation, extraction from legacy to flat file, file to FlexCube, mock runs, testing, etc.
Data migration strategy developed by Inntron & i-flex, approved by HDFC bank
Data mapping conducted by Inntron and approved by HDFC bank
Data upload to FlexCube utilities developed by i-flex and Inntron
Extraction from legacy system executed by legacy system vendor, requirements prepared by Inntron
Data uploads to FlexCube conducted by i-flex and Inntron, verified and approved by HDFC bank
Sizing – IBM
Procurement – HDFC bank and Stone Computers (an IBM authorized reseller)
Setup – IBM
Maintenance – IBM
Support – IBM and HDFC bank
Third party software is maintained and supported by the respective software vendor in accordance with the HDFC bank internal rules and procedures
i-flex software (all in compliance with HDFC bank internal IT policy, rules and procedures)
Setup – Inntron
Maintenance – Inntron
Support – Inntron
Post – Production support:
Local support would be provided to the bank. Also a help desk system has been integrated which will allow the bank to track issues and the steps to be taken to curb them.
Fall – outs of the implementation:
What was done right:
Close tracking of all the resources and implementation.
Prevention of feeling of paranoia among the implementation team during each stage.
Regular visibility to all stake holders so that they have a clear idea about what to expect from the ERP.
Daily discussion of employee issues so that there is no resistance.
What should have been done differently
No insistence on the creation of full time dedicated bank implementation team from the start of the project. This resulted in a longer hand over time from the system integrator to HDFC bank.
Also it took a long time for HDFC’s bank personnel to get accustomed to the new ERP.
The implementation of FlexCube has resulted in Higher Return on Investment and Lower cost of ownership for HDFC bank. The bank’s IT department head count was reduced by 42%.The bank’s back office operations department was completely centralized and head count reduced by over 50%. The bank’s front office personnel was relieved from back office duties and entirely focused on sales and customer services. Customer’s information gathered, stored and analysed has increased by over 70% for retail customers and over 50% for corporate ones. A range of new services introduced such as on-line card authorization, internet banking, and reporting. Also HDFC bank has had an average annual return on equity crossing two years. The operating statisitics can be seen in appendix fig1
Domestic and International Payments will enable staff reductions and faster and more reliable services to customers
An on-line and timely reporting enabled will allow all levels of management for easy analysis and fast response to market trends and customer’s needs
A range of new products will be introduced and new customer growth rate is slated to increase, from 15% to 35%, on a yearly basis
Customer scoring system interfaced to FlexCube will reduce the average time for decision making from 2.5 days to 6 Hours
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