ERP implementation and significance in banking industry

The Industrial Credit and Investment Corporation of India (i.e., simply ICICI bank of India) is India’s 2nd largest bank (first being State Bank of India – SBI) currently with total assets of value more than 3,634 billion which approximately amounts to US $ 81 billion. For the financial year ended 31st March 2010; the Net Operable Profit After Tax was found to be 40.238 billion which is approximately US $ 898 million.

To achieve such a financially high value, the bank needed to have a huge network. Today, its network is one of the biggest networks in the country having 2528 corporate branches and about 6000 ATM centers across the country. It is currently present in 19 countries. Besides India (where it originated); the bank has subsidiaries in USA, UK, Singapore, Bahrain, Hong Kong etc. and representative offices in UAE, China, South Africa, Bangladesh, Thailand, Malaysia etc. The company is focussing on more and more growth and further expecting to expand its market structure.

The firm i.e., ICICI Bank in the current scenario; offers an enormous wide range of banking products and various financial services to a large number of corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, venture capital and insurance sectors. The bank today had multiple number of rewards and its innovative solutions has conquered the minds of customers and managed to win over their hearts. The company’s network is the biggest and it had more than 15 million customers by the current year. The growth achieved by the company in the recent few years is noteworthy.

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ORGANIZATIONAL OBJECTIVES

As a firm grows, it has certain challenges to face and its profitability totally depends on how it uses various available resources to safeguard itself. The best way to avoid competitors and rivalry firms from sidelining you is to continuously upgrade yourself with latest technology and market trends.

The main objective of ICICI bank was to have a universal bank which can provide required value to customers with financial solutions. High technology was required and at the same time, it was necessary to have a proper framework to avoid risks associated. Since, there were various applications involved; the level of vulnerabilities needed to be checked and minimized.

Key Business drivers

These factors govern the way the firm should manage its business. ICICI bank was established when the economic concepts of liberalizations and globalizations just started in India. Before the arrival of ICICI bank, the banking sector was under control of several state owned and foreign owned banks. But with the arrivals of economic trend like liberalization & globalization; Reserve Bank of India (then, apex bank of the nation) had paved the way for private banks to come in.

The state owned banks had huge network but no or little innovation involved (focus on service) while reverse was the case with foreign banks. State owned banks focussed on only poor people and gave only simple interface without provoding any special features while foreign banks targetted individuals or corporations with high net worth. So, the only opportunity possible for ICICI bank to grab market share was to target middle class on a larger scale and that too by innovations. Doing this analysis, ICICI Bank decided to position itself as a technology savvy customer friendly bank.

Problems with the existing system

The existing system had many applications running simultaneously to satisfy the requirements of the customers. But those applications had several vulnerabilities and their weaknesses needed to be addressed before it gets exploited by the customers and competitors.

Pravin Vohra, Group CTO, ICICI bank was tensed by the speed of online transactions and he points out that the applications aren’t centralized enough that makes security testing of applications a highly time consuming task. He wanted to search for proper vendor to organize the given set of applications so that all the security tests can be covered as soon as possible.

The main problem was that ICICI had poor risk management and they badly needed some framework to help them assess risk. Secondly the database used in the system wasn’t centralized and hence the main task in front of the industry was to have centralized database so that data access becomes simple process.

Expectations from the technology

Now, the challenge in front of ICICI bank was to have proper framework so that all the weaknesses are corrected at the lowest possible costs. As per words of Chandra Kochar, executive director of ICICI bank; “Our objective of creating a universal bank providing end to end financial services clearly required solutions which were based on new generation technology, offered end to end functionality and were highly flexible and scalable.”

The main problem in the existing system was risk associated with all the applications and most of the applications at that time; needed to be tested continuously so, the bank required a software to manage the testing of all applications autonomously so that the time is not wasted in manually searching for faults and available recovery solutions. To manage proper assessment of risk associated with applications, ICICI needed to have the technology which can test applications and correct problems if possible.

In order to penetrate into the market, the bank needed to have the necessary technology to make system strong and to ensure smooth flow of information within the system. The other requirements from the software in India were to have open systems approach, future proof excellent technology and best of breed retail etc. ICICI wanted to achieve economies of scale.

Further more, ICICI wanted to have a centralized database to support all applications going on and needed a solution which can boost up its infrastructure in friendly manner.

IMPLEMENTING THE ERP TECHNOLOGY

ICICI bank had positioned itself as a technology focussed industry. Most of its plants & facilities were on the verge of automation and this was mandatory to achieve customer satisfaction and to rival the foreign firms.

Selecting the vendor

The company had some requirements in front of them and their job was to analyze which vendor would satisfy their requirements. So, they went through brochures of various Application developers and studied software requirements. After studying various features offered by different vendors they decided to shortlist 2 vendors – Finacle Core Banking Solution by Infosys and SAP by IBM.

ICICI then finalized Fiancle Core Banking solution because it was segmented for financial institutions only. They took Finacle because of its specificity made it suitable for banks, secondly Finacle’s future proof technology, and extensive corporate banking features, scalable architecture, best of breed retail made it a technology worth selecting. Some of the key technological features offered by Infosys Finacle were:

Advizor

Helps Banks to deliver services through a self service channel

Alerts

Provides banks with the capability to alert end users about updates and new services

Consumer Relationship Management

CRM is a modular, multi lingual application to help bank to have centralized database containing all the customer information want.

Core Banking

CBS addresses various strategic and key technological processes taking place in a bank. It checks faults associated and corrects them.

Direct banking

This marketing tool helps banks to directly acquire, track and service customers.

E – banking

Provides high flexibility for customization and robust security features

Mobile banking

Empowers banking transactions on mobile channels like SMS or GPRS

Wealth Management

Modular and integrated investment management system for specific purpose

Operational data store

Data warehouse centralized and secured.

Treasury

Finacle is an integrated treasury solution covering the entire deal lifecycle for broad range of trading and capital markets products.

The major advantage was that Finacle offered so many features at comparative lesser costs compared to other similar technolnogical products. Keeping these many wide and industrial applicable features in mind, the technological software solution used was Finacle and the vendor was Infosys.

Problems faced during the beginning

The implementation of any technology cannot be successful right from the beginning as risks are involved. The 1st step involved is to make this technological change understandable by humans and hence the challenge was in front of ICICI was to ensure proper training to their employees. For that purpose, special officials were employed. Training were given to employees right from the day when technology was deployed. This was a key step in maintaing vendor relationships.

Integrating this technological change with the existing system is the major hurdle which is to be overcomed. The biggest challenge which Finacle had was to ensure Straight Through Processing (known as STP in corporate segment) of various financial transactions. With the ICICI group having many companies under its huge corporate umbrella. Finacle had to integrate with various corporate wide applications like Credit Card, M – banking, mutual funds, brokerage, call center and other applications taking place simultaneously.

ICICI bank went with a phase of organic and inorganic growth to expand market share. First it bought out Bank of Madurai and then had a reverse merger with parent firm i.e., ICICI limited. Therefore, managing with the technology change was a hurdle for the bank. To overcome this obstacle, ICICI decided to have a strategic partnership with the software vendor i.e., Infosys. That strategic partnership started in 1994 and that close collaboration in 1997 led to many innovations.

Getting the benefits during the end

Once the problems with the implementation are identifed and corrected via proper planning toolkits, the success and benefits are guaranteed. The major advantage with Finacle was that it was a scalable and open system architecture and this made it a successful implementation. In 2000 only 400, 000 transactions while this figure was more than 2 million in 2005 years so, popularity of the bank drastically increased in only 4 years.

The risks associated with people, process and technology was managed and this made ICICI a profitable firm. In 1997, ICICI was the first bank to ensure electronic banking. This made ICICI establish itself as the leader in the e – commerce segment. The main advantage of using Finacle was that only 25 % routine transaction take place through branches and remaining through various delivery channels.

http://www.infosys.com/finacle/Images/icici_cs_img1.gif

Fig: Finacle offering various services in ICICI.

Thus, the use of Finacle has helped ICICI in cutting costs and time and managing automatically various transactions that take place on a day to day basis. As shown above, ICICI managed to penetrate into various market segments by the enormous features offered by Fiancle. Today, most of the transactions take place at the bank center by its various distribution channels and not at the branches.

CONCLUSIONS

After studying the given case, it can be understood that what role the technological advances play in growt A powerful of a bank. A highly scalable and flexible technology platform is essential for organizations to manage growth and compete successfully. Such a software is Finacle. Fiancle, a leading IT Core Banking Solution has helped ICICI achieving its objectives across the network. Though ICICI faced certain problems and challenges in the beginning, they managed to win in the end. Thus, investing in technology helped ICICI get rich dividends.

The bank has successfully used the Finacle and has managed to successfully deploy the solution in the areas of core banking, consumer driven e-banking (Electronic B 2 C segment), direct banking, corporate e-banking (Electronic B 2 B segment) and Customer Relationship Management. Thus, Finacle guaranteed flexibility to achieve proper segmentation. This helped ICICI in growing its market and having some edge over the competition.

because of its high trust on technology, ICICI Bank is recognized as a leader in the region and has won a large number of awards worldwide for its technology-driven initiatives. The bank has used core technology as a strategic differentiator, thus redefining the rules of banking in India and additionally also showing how technology can do some good in transforming a bank’s business.