Being the country’s first women’s bank is not the only factor that sets Bharatiya Mahila Bank apart from other lenders.
It’s set to become a trendsetter by adopting a technology infrastructure model based on per-usage payment system -- the first time by an Indian bank.
The bank, expected to start operations in eight cities from November, is currently in the process of finalising its IT vendor. Official sources say three technology companies -- Infosys, US-based technology firm FIS Global and Polaris Financial Technology -- are in the fray for the ambitious project, to be based on the hosting model.
According to the terms and conditions, the selected service provider will own the hardware and software of the entire bank and will be paid on a per-branch-per-month basis.
While FIS’ bid is said to be worth Rs 900 crore (Rs 9 billion), Infosys might have quoted Rs 1,400 crore (Rs 14 billion) for the seven-year contract. Given that the Reserve Bank of India is going to issue new banking licences next year, this model, if successful, could set a precedent for new companies looking to start banking services.
While the hosting model is uncommon in India’s banking sector, a few of the government departments are going for this model.
For example, in the case of the Central Processing Centre of the income-tax department, Infosys, the IT vendor that has developed the entire IT infra for the centre, is paid on a per-transaction basis.
However, in the case of Bharatiya Mahila Bank, a per-transaction model is not possible, since it would be difficult to predict the number of people signing up, says a senior official.
In view of this, a per-branch-per-month model has been agreed upon.
An industry official said, with advancement of technology, especially the cloud technology, it is no more necessary for banks to own all assets.
“Since the capital expenditure will be put in place by the service provider, the bank will not need to have a big IT set-up.” The official added it would save the administration initial investment cost and hasten the process.
Setting up of a women’s bank was announced by Finance Minister P Chidambaram in his Budget speech this year and his ministry has since been pushing for a quick rollout.
SBI Capital Market Ltd has been appointed as a consultant to help set up the bank.
A five-member panel, headed by former Canara Bank CMD M B N Rao had prepared the blueprint for the bank.
The government has also provided Rs 1,000 crore (Rs 10 billion) as initial capital for the bank.
A finance ministry official said IT vendors had sent their bids for implementing the bank’s core banking solution and the core group was examining those.
A final decision would be taken soon.
Asked about the hosting model, the official said: “We won’t own it. "We will go for a critical access. "The project is set up by the vendor on an ownership basis.
"Normally, there is a contract for a certain period.”
According to the conditions set by the finance ministry, data would initially be stored on the service provider’s servers, while all IT assets, hardware as well as software, would be transferred to the bank at a pre-determined price after a certain period.
Milan Sheth, partner, business advisory services, Ernst & Young, said the ‘banking in a box’ kind of a model being considered could set a precedent for the industry only if there is high predictability of the nature of services and the transaction volumes.
“Several overseas banks have tried to build this model but they have found it very difficult to forecast volumes.”
Sheth added the government had, perhaps, given a minimum commitment on volume -- to share part of the risk with the service provider.
“The fact that banks would not have to make huge up-front investments and would be able to start operations at a much faster pace are definite advantages of this model,” he added.
However, some officials have raised questions on FIS, a foreign technology company with little experience in the banking sector, being considered for the project.
“All technology projects of national importance are serviced by Indian companies, as these are long-term contracts and require consistency.
"For example, the passport project is done by TCS, while Infosys handles the I-T CPC,” said a senior industry source. Since the bank was following a hosting model, it became all the more important to choose the vendor carefully, the person added.
Neither FIS nor Polaris responded to emails sent by Business Standard.
LEADING THE WAY
- Hosting model: Mahila Bank to be the first Indian bank to go for this model for tech infra
- Costs: Besides managing IT operations, tech partner to bear the costs for hardware and software
- Payment: Tech partner to be paid on a per-branch-per-month basis
- Asset transfer: After end of the contract tenure, all the assets would be transferred to the bank at a pre-determined price
- Benefits: The model would help the bank avoid making upfront investment in technology; would also hasten the expansion process