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Process Innovation in the Indian Banking Industry. January 2009 ValueNotes. Arun Jethmalani, Managing Director, ValueNotes jetu@valuenotes.com. Dedicated practice within ValueNotes - Focused on researching the outsourcing industry. About ValueNotes Outsourcing Practice.

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slide1

Process Innovation in the Indian Banking Industry

January 2009

ValueNotes

Arun Jethmalani, Managing Director, ValueNotes

jetu@valuenotes.com

slide2

Dedicated practice within ValueNotes -

Focused on researching the outsourcing industry

About ValueNotes Outsourcing Practice

Focused Reports/ Info-products:

In-depth information & analysis on outsourcing in different verticals /service lines

Custom Research:

Opportunity assessment, vendor benchmarking /selection, investment appraisal, location and cost-analysis

  • Significant domain expertise
  • Large & evolving knowledge base
  • Global clientele and relationships
  • Growing brand awareness in the industry

Thought Leadership… in the offshoring industry

www.sourcingnotes.com

slide3

ValueNotes Publications

Reports on Niche Segments

Industry/ Vertical Reports

  • Legal Services
  • Publishing
  • Bio-informatics
  • Tax Returns Preparation
  • Market Research
  • Patent Services
  • Banking and Financial Services
  • Insurance
  • Engineering Design
  • Pharmaceutical
  • Healthcare

Databases / Profiles

Upcoming Reports

  • DealTracker: (Contract, M&A, VC/PE deals)
  • In-depth Company Profiles
  • KPO
  • Country Reports
  • Company Profiles
  • Business and Financial Research

www.sourcingnotes.com

slide4

ValueNotes Publications

Market Intelligence

Target Intelligence

Clients

  • Opportunity Assessment
  • Study of specific segments in BPO / KPO
  • Comparative analysis
  • Competitive assessment
  • Vendor Evaluation & Benchmarking
  • Partner Selection, Due Diligence

End Users (Buyers)

Investors, VC & PE firms

Consultants

Location/Cost Analysis

Customized Publications

  • Analysis of potential markets
  • Cost analysis and comparison
  • Investment Opportunities in KPO
  • Newsletters
  • Magazines
  • Articles
  • Sponsored reports

Industry (BPO, KPO, IT)

www.sourcingnotes.com

slide5

Clients

Consulting Cos.

BPOs

Corporations

PE / VC

  • KPMG
  • Axyva
  • PWC
  • Booz Allen Hamilton
  • BCG
  • TPI
  • Deloitte
  • Cognizant
  • Integreon
  • Perot Systems
  • Wipro
  • Infosys
  • WNS
  • Satyam
  • IBM
  • Thomson Corp
  • P&G
  • Microsoft
  • Aviva
  • GSK
  • West Corp
  • GM
  • Warburg
  • Seqouia

Ever-expanding customer base, now > 500

slide6

Executive Briefing – An outline

  • Process Innovation in the Indian Banking Industry: Overview
  • Drivers & Constraints
  • Services Outsourced by Indian Banks
  • Market Size & Opportunity
  • Service Provider Landscape
  • Key Success Factors
slide7

International Banks – Early Adopters

Globally, BFS sector accounts for nearly 60% of the global offshoring market. In contrast, the Indian banking sector has been slower to outsource.

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

But Indian Banks Lag Behind…

slide8

Executive Briefing – An outline

  • Process innovation in the Indian Banking Industry: Overview
  • Drivers & Constraints
  • Services Outsourced by Indian Banks
  • Market Size & Opportunity
  • Service Provider Landscape
  • Key Success Factors
slide9

Drivers & Constraints

Unlike the offshore BPO market, labor arbitrage is not a key driver for growth in the domestic BPO market.

  • Aggressive adoption of IT and centralization of operations has served as a key enabler to outsourcing of business processes in the banking industry.
  • Growth in the banking industry, deregulation, increasing competition, consolidation and improving benchmarks in the industry are driving the outsourcing of business processes.

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

Outsourcing of processes is largely constrained by the RBI regulations

slide10

Executive Briefing – An outline

  • Process innovation in the Indian Banking Industry: Overview
  • Drivers & Constraints
  • Services Outsourced by Indian Banks
  • Market Size & Opportunity
  • Service Provider Landscape
  • Key Success Factors
services outsourced by indian banks
ServicesOutsourced by Indian Banks

The outsourceability of processes is determined by two factors: their classification as core service and the strategic value of the process.

  • Core Processes: Classified by RBI or categorized under KYC norms
  • Strategic Value Processes: Activities / Processes with strategic importance to banks

“We will look at outsourcing activities like tech-enabled customer service delivery that are not core to our business.”

- Head CBS, Leading Bank in Maharashtra

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

Large banks currently outsource non-core, non-strategic value processes

slide12

Product Development

  • Sales and
  • Marketing
  • Transaction
  • Processing
  • Treasury
  • Regulatory
  • Compliance
  • Other
  • Services

Product Strategy and Policy

Advertising

Payment Processing

Reconciliation

KYC Norms

Alliances

Asset Management

Anti-Money Laundering

Credit Collateral Evaluation

Forex Management

Collections, Accounts Closure

New Product Development and Planning

Funds Management

Account-Transaction Monitoring

International Banking

Loyalty Programs

Check and Loan Processing

Transfer Pricing

Value Added Services

Document and Reporting

Corporate Communications

Risk Management

Reconciliation

New Account Opening

Lease Management

Data Entry

HR

IT Services

Non-Core Processes

Core Processes

Current Level of Outsourcing

Low

High

ServicesOutsourced by Indian Banks

Majority of the banks typically outsource some of their non-core activities with strategic value like IT systems and process implementation to third party service providers.

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

Banks typically outsource IT systems and process implementation

slide13

Executive Briefing – An outline

  • Process innovation in the Indian Banking Industry: Overview
  • Drivers & Constraints
  • Services Outsourced by Indian Banks
  • Market Size & Opportunity
  • Service Provider Landscape
  • Key Success Factors
slide14

Market Size & Opportunity

The total opportunity for outsourcing in the banking sector is estimated at Rs. 11.2 b for FY08. Our research suggests that little over one-third of this opportunity (Rs. 4.08 b) is currently being met.

“Completion of Core Banking System projects by large banks will exponentially increase the outsourcing potential in domestic Banking sector.”

- Head CBS, Large PSB in India

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

Majority of the revenues are earned from voice-based services in sales and marketing. Apart from sales and marketing related services, the Rs. 4 b market is spread across processes like payroll outsourcing, recruitment outsourcing and research and analytical support.

Outsourcing estimated to grow at a CAGR of 47% over the next 4 years

slide15

Future Opportunities: 3 Scenarios

  • We believe that there are two key determinants to outsourcing in the banking Industry - regulatory framework and the ability of banks to refine their strategy while adapting to changing business conditions.
  • The growth post 2010 will primarily depend on the government elected at the center and its success in pushing reforms in the banking industry.

“De-regulation especially in KYC norms can trigger the next wave of outsourcing by domestic Banking Sector”

- Pralhad Tembhe, DGM Central Bank of India

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

In case of rapid deregulation, the market has the potential to triple by 2010.

slide16

Key Trends & Insights

  • The complexity of operations will substantially increase – new opportunities for banks/BPOs: Will provide a boost to low value activities such as data entry & validation, CRM services like telesales, SMS based support, chat, Internet support, etc.
  • With increased use of new delivery channels (Internet, mobile, ATM), multi-product delivery and cross-selling will enhance scope of BPO services.
  • Enhanced penetration and usage of IT will propel greater usage of BPO, as banks seek to leverage IT investments to improve RoI
  • Expansion of IT into non-core areas will increase demand for related BPO
  • Captives will continue to grow, especially for PSBs
slide17

Executive Briefing – An outline

  • Process innovation in the Indian Banking Industry: Overview
  • Drivers & Constraints
  • Services Outsourced by Indian Banks
  • Market Size & Opportunity
  • Service Provider Landscape
  • Key Success Factors
slide18

Service Provider Evolution

The Banking industry was one of the first to outsource business processes to third party service providers in the Indian market. Banking is also one of the largest segments in terms of total outsourcing opportunity the domestic BPO industry.

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

With increased automation of back office services, scope for outsourcing will widen…

slide19

Service Provider Landscape

We have categorized the service providers into the following four groups:

Out of the 60 large Global leaders (total 10,000+ employees) serving the international Banking and Financial Services vertical, <10 BPOs actively cater to Indian banks

Shell Transource

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

Majority of the large service providers in the domestic market have a substantial focus on the banking industry

slide21

Frontrunners

Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry

Disclaimer - Findings are based on secondary research combined with detailed discussions with service providers. Quality of information depended on the cooperation of respondents from the management of the companies. Where information was not disclosed by service providers, secondary data, internal analysis and other suitable criteria were used.

slide22

Executive Briefing – An outline

  • Process innovation in the Indian Banking Industry: Overview
  • Drivers & Constraints
  • Services Outsourced by Indian Banks
  • Market Size & Opportunity
  • Service Provider Landscape
  • Key Success Factors
slide23

Key Success Factors

Large scale, multiple city operations

  • Most of the mid-sized and large Indian banks have centers and market presence across cities and towns in India.
  • Most of the banks prefer to have distributed outsourcing delivery centers in each region close to their head quarter.
  • Ability to quickly ramp up operations will be critical for growth
  • Local language capabilities are required to serve the end clients (especially in non-metro towns).
slide24

Key Success Factors

  • The complexity of operations will substantially increase as service providers add new clients, manpower and new delivery centers over the next 2 years.
  • Integrating international operations with domestic operations will be a key challenge.
  • Developing and implementing new operations and solutions delivery mechanisms to improve quality of services while further reducing costs will become essential to acquire the leadership position.
  • Partnerships with other entities in IT-BPO supply chain (like IT services providers, hardware service providers) will provide greater value to the client.
slide25

Key Success Factors

Advisory capabilities to move up the value chain

  • Most of the Indian banks have relatively low (technology) maturity in their processes and are new to outsourcing. These banks are currently experimenting with outsourcing by outsourcing small volumes of low value work. With further de-regulation in the banking Industry, the scope for outsourcing will widen.
  • With increased complexity and scale, further outsourcing will require guidance in terms of process migration, best practices, benchmarking, etc.
slide26

THANK YOU !

  • ValueNotes Database Private Limited
  • 1, Bhuvaneshwar Society, Abhimanshree Road, Pashan, Pune 411008
  • Tel: +91 20 25881164 / 65
  • URL: www.sourcingnotes.com

www.sourcingnotes.com