Download - IT Landscape in BFSI 2012
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Zinnov Management Consulting
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IT Adoption in BFSI Sector in India 2012
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India is a fast growing IT market; BFSI vertical constitutes a significant share of the overall spending
$3.5
$11.0
$11.7
$4.2
$12.6
$13.7
FY12 FY11
17.1%
USD billion
14.4%
19.5%
Total domestic IT market FY12 ~ USD 30.4 billion
Hardware
IT Services
Software Products
Energy 15.7%
Government 15.4%
BFSI 11.1%
Telecom 7.2%
Education 1.5%
Healthcare 1.0% Retail
0.4% Others1
7.0%
Consumers 11.9%
Manufacturing 28.8%
Distribution of IT Spending in India, FY12
Overall, BFSI vertical is contributing significantly to the growth of the Indian economy; its share in Indian GDP is estimated at ~8%
Source: Company Annual Reports and Press Releases; Dataquest; Primary Interviews with Stakeholders in the Indian IT Ecosystem; MOSPI; Zinnov Analysis Note: 2
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Source: RBI, IRDA Note: *Not registered with RBI, but the RBI issues direction relating to deposit acceptance policy
The rapid diversification of the sector including Banks, NBFCs and Insurance presents huge IT opportunity
Scheduled Banks in India (235)
Commercial Banks (166)
Public Sector Banks (26)
Nationalized Banks (20)
SBI and its Associates (6)
Private Sector Bank (21)
Old private Sector Banks (14)
New Private Sector Banks (7)
Regional Rural Banks (82)
Co-operative Banks (69)
Urban Co-operatives (53)
State Co-operatives (16)
Life Insurance (24)
Non Life Insurance (24)
Reinsurance (1)
Insurance Sector (49)
NBFCs (12,409)
Registered and Regulated by RBI
Loan Company
Investment Company
Equipment Leasing Company
Hire Purchase Finance Company
Residuary Non-Banking Company
Exemption from RBI regulations and registration
Insurance Companies
Stock Exchange, Stock brokers, etc.
Housing Finance Companies
Micro Finance Companies
Not registered but regulated by RBI*
Mutual Benefit Finance Cos. (notified nidhis)
Mutual Benefit Cos. (potential nidhis)
Misc. Non-Banking Cos. (chit funds)
Foreign Banks in India (33)
Over 97,000 Unscheduled
Banks
3
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After a slow growth phase during the economic downturn, the banking industry has started growing rapidly again
Performance Indicators for Indian Scheduled Commercial Banks, USD billion
794 830 948
1,141
587 601 685
864
2007-08 2008-09 2009-10 2010-11
Aggregate Deposits Bank Credit
Source: RBI; Company Websites; Zinnov Analysis Note: *Regional Rural Banks
Rapid geographic expansion plans (SBI, Indian Overseas Bank,
etc.)
New banking licenses from RBI (Maharashtra
State Cooperative Bank)
Foreign banks opening branches in India (Woori
Bank, FirstRand Bank, Westpac)
Expansion into investment banking and other advisory services
(Axis Bank)
Regulation and compliance (IFRS, Basel
III, etc.)
Innovative products and platforms (virtual debit
cards, RuPay, etc.)
Focus on Financial Inclusion (RBI, SBI, Punjab
& Sind Bank)
Single view of customer; single point of access for
all Information
Consolidation/ recapitalization of RRBs*
across India
Branchless banking via mobile, internet kiosks, etc. (SBI, Union Bank)
Banking Key Trends
4
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Financial Services and Insurance sectors are following suite and have shown promise
Statutory automation as per IRDA Growth of Micro-insurance Collaboration with banks: the Bancassurance model Targeted customer approach Increasing competition (no. of players increasing) Delivery channels like mobile, internet, distance
marketing in addition to agent model Portability of health insurance policies E- insurance accounts
16
24
19
25 26
2007 2008 2009 2010 2011
Total Assets of Non-Bank Finance Companies in India (end-March), USD billion
36
52 48
56
64
6 7 7 7 9
2007 2008 2009 2010 2011
Life Non-life
Gross Premium Underwritten by Insurers, USD billion
Financial Services
Insurance
Source: RBI, IRDA Note:
Growth of Micro-credit Need for real-time processing in capital markets Focus on wealth management Introduction of new financial products (CDS for
corporate bonds, securitized debt, fund products) Government focus on increasing investor base for
the capital market
5
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The growing business needs of BFSI players have led to a rapid adoption of IT in the BFSI vertical
Source: Zinnov Analysis Note:
Meet Regulatory Requirements/
Security
New Channels for Furthering Reach
Improve Internal Efficiencies
Support Growth Strategies
Develop Customer Experience
Customers are investing in IT applications which help them better align their business processes and improve internal efficiencies
Regulatory authorities like RBI, IRDA and SEBI release regular mandates necessitating IT adoption for better services and security
Key IT investments are targeted at supporting the business growth plans of BFSI customers Customers are looking
for IT solutions which can help them differentiate themselves from their competitors
IT is helping BFSI players in extending their reach to the unbanked population of India
Key Drivers for IT Adoption in BFSI Vertical
6
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as a result, the IT market has been growing at 13% YoY, with key adoption across all domains
IT Spending in BFSI, USD billion
Services ~32%
Hardware ~53%
Software ~15%
IT Spend Distribution
2.4
2.7
FY11 FY12
Customer IT Service Provider Description
IDBI Bank Oracle IDBI Bank deployed Oracle Hyperion Planning to create budgets and rolling forecasts that are linked to its balance sheet and profit and loss models
Bank of Baroda HP Assessment and refresh of the bank's applications and IT infrastructure
ICICI Securities Microsoft Enabling an online trading platform for ICICI
Dhanlakshmi Bank Hitachi Transfer of banks non-core banking applications to Hitachi USP VM which allowed it to adopt virtualization and reuse old storage boxes
NABARD Wipro End-to-end solution to computerize four co-operative banks
Mannapuram Finance IBM A 10-year deal to manage entire IT infrastructure in the areas of finance, HRM, BI, collaboration and document management
Union Bank Cisco; Wipro Deployment of Ciscos wide area network optimization solution across all of 1,600+ branches of Union Bank
Key Recent IT Deals in BFSI Vertical
Source: Nielsen Domestic IT-BPO study 2010; Primary Interviews with Stakeholders in the Indian IT Ecosystem; News Updates; Company Websites; Zinnov Analysis Note:
IT Budgets as a Percent of Revenues for BFSI: ~1.5-2.0%
Percentage Outsourcing in BFSI: ~60%
7
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Compliance requirements and guidelines by governing bodies have played a key role in driving IT adoption in the vertical
Source: RBI; News Updates Note: *Credit Default Swap
In Oct-11, RBI instructed all NBFCs to gradually phase out use of checks and shift to electronic payment system
In Apr-11, RBI allowed co-operative banks and RRBs to transfer funds electronically through RTGS and NEFT
RuPay, Indias domestic card payment network was introduced by NPCI in early 2012
RBI has mandated that corporates seeking banking licenses will have to commit to having 25% of their bank branches in rural unbanked areas
In 2011, RBI mandated adoption of CBS by all RRBs across India
SEBIs nod on SME exchange
Encourage Digital
Transactions
Compliance Regulations
Financial Inclusion Initiatives
Security
RBI mandated that all the banks should automate the process of filing regulatory reports (ADF Regulations)
In 2011, RBI issued draft guidelines on implementation of Basel III capital regulations
In 2011, RBI issued guidelines on CDS*, directing market participants to report such trades within 30 minutes to the Clearing Corporation's online repository
An RBI committee earlier issued recommendations to banks to enhance cyber security and has also threatened actions against those who would not comply
In April 2011, RBI released Guidelines on Information security, Electronic Banking, Technology Risk Management and Cyber Frauds detailing guidelines to its affiliates under nine subject areas including: IT Governance, Information Security, IT Operations, IT Services Outsourcing, IS Audit, Cyber Frauds, Business Continuity Planning, Customer Education and Legal Issues
Recent Regulations & Guidelines Influencing IT Adoption
Encouraging Customer
Friendliness
In order to encourage mobile transactions, RBI removed the limit cap for transactions of INR 50,000 in Dec-11
In Oct-11, IRDA allowed health insurance portability for policy holders
IRDA has also asked LIC to complete all claims-related investigations within the stipulated time-frame of six months
SEBI allowed mobile trading for equities in 2010
8
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There has been a marked growth in maturity of IT adoption by the BFSI customers over the past few years
IT Adoption Evolution in BFSI
1.6 1.0 2.7
4.3
9.4
2008 2009 2010 2011 2012*
Year-wise Number of Deals Tracked (indexed to 2007)
Source: Press Releases, News Updates, Zinnov Analysis Note: *2012 deals tracked till April; based on pro-rata value
2008 & Earlier 2009-10 Present
0%
47%
10% 11%
32% 7%
31%
27% 4%
31% 4%
31%
35%
11% 19%
Key Solutions in Demand (Level-wise)
Gradual IT adoption around core applications like CBS
Mobility solns./ online payment Use cases of solns. like BI/ cloud
starting to emerge
Replacements of legacy systems (e.g. CBS, collab.)
Focus solns. (e.g. Treasury soln.)
Minimal IT adoption observed RRBs (sponsored by larger banks)
starting to adopt CBS
Continued investments in CBS Increasing traction for public
cloud
Large Banks/ FSI Firms
Regional Banks/ Smaller FSI Firms
Complete Outsourcing/ Managed Services Core Modern IT
Non-core Security/ System Solution/ Networking
Modern IT Modern IT Modern IT
9
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A host of key focus areas is driving the adoption of IT in the vertical
Source: Zinnov Analysis Note:
Core Banking Solution
1
2
3
4
5 6
7
8
9
Business Enabling Solutions
Peripheral Applications/ Solutions
Security and Compliance
Cloud and Virtualization Business Intelligence
Mobile Banking/ Mobility Solutions
Social Networking/ Online Solutions
IT Adoption Trends in
BFSI Vertical
Services Driven Market
10
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While CBS continues to be a key area of focus, players are investing in solutions which can help them in solving targeted business issues
Core Banking Solutions
1
Regulatory Guidelines and Growth Driving CBS Adoption among RRBs and Co-operative Banks
Business Enabling Solutions
2
The Regional Rural Banks and co-operative banks (driven by larger entities like Canara Bank and NABARD) have emerged as an attractive segment for CBS adoption in past few quarters Wipro to implement Finacle for Canara Banks RRBs (900 branches)
11 Co-operative Banks in Gujarat partner with TCS for core banking solutions
Larger Banks Adopting CBS 2.0
Kotak Mahindra has replaced its existing CBS with a newer version to become future ready Infosys Finacle
IndusInd bank recently implemented Infosys Finacle CBS
Nawanagar Co-operative Bank adopted CBs on cloud (IBM Implements OMNIenterprise)
Indian BFSI players are looking for solutions which can help them in better aligning their business processes
Source: Press Releases, News Updates, Zinnov Analysis Note: *Enterprise Project Management
Axis Bank implemented the Microsoft EPM* soln. to help manage its project workflow, improve project reporting, and resource forecasting
FedBank and NABARD adopted Loan Management Solns. to manage loan services (FedBank: IBM server and Nucleus Software, NABARD: Polaris)
ICICI Prudential and IndusInd Bank have adopted BPM and Workload Automation respectively to automate their processes - Newgen
Cosmos Co-operative Bank has adopted a solution help it in reducing NPAs and keep a check on them IndiSoft worked with Cosmos to conceptualize the product as Infosys Finacle was not efficient for NPA
11
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Non-core applications and security/ compliance solutions are expected to continue witnessing demand in the sector
Peripheral Applications/ Solutions
3
Security and Compliance
4
F&A Solutions
Collaboration
CRM
IDBI Bank deployed Oracle Hyperion Planning to create budgets and rolling forecasts that are linked to its balance sheet and profit and loss models
Aditya Birla Services replaced its old Lotus Domino Platform for collaboration with Microsoft Exchange Server 2010 and Microsoft Office SharePoint Server 2007
ICICI Securities deployed a CRM solution for the management of Sales and Lead Management requirements across its various business divisions - CDC
HDFC Bank deployed a treasury solution to help manage the transaction processing systems TCS Bancs
Compliance
Security
RBI guidelines such as enabling Automated Data Flow in the banks are driving key IT investments to be made/ planned
A Japanese bank's Indian arm deployed WKFS FRSGlobal ADF soln. to meet the ADF regulations Wolters Kluwer
While Yes Bank is planning to pilot ADF soln., 4 Indian banks have already adopted WKFS ADF Soln.
Bajaj capital adopted solutions from Juniper to improve network efficiency as well as increase security standards
Axis Bank has deployed SatNav's a-mantra FM Product to map all its offices in great detail to capture property information, the layouts of each location, etc.
Source: Press Releases, News Updates, Zinnov Analysis Note: 12
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New technologies such as cloud/ virtualization and Business Intelligence (as a result of ADF) are picking up
Cloud and Virtualization
5
Business Intelligence
6
Virtualization
Cloud Computing
Players like Kotak Mahindra life Insurance, Reliance General Insurance, IndiaFirst Life Insurance have adopted VMware based virtualization solutions to help improve efficiencies of their data centers
Dhanlakshmi Bank has opted to move all of its non-core banking applications to Hitachi USP VM which allowed it to adopt virtualization and reuse old storage boxes
Nawanagar Cooperative Bank has engaged with IBM to deploy CBS on a hosted cloud services model
ShamRao Vithal Bank partnered with NetApp to offer cloud based solutions to other co-operative banks in its region
Some larger banks like Yes Bank has shown their inclination towards adopting private cloud for their organizations
BI is emerging as an attractive proposition for BFSI players to develop targeted customer insights
IndusInd Bank has selected iCreates Biz$core Business Intelligence (BI) solution as a key component of its enterprise Business Intelligence strategy
Similar adoption by HDFC bank, Dhanalaksmi Bank etc.
Yes Bank has built an in-house BI solution for better understanding of customers and their behavioral patterns
Source: Press Releases, News Updates, Zinnov Analysis Note: 13
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Need for mobile banking and social networking have emerged as essential for the next generation services in the vertical
Mobile Banking/ Mobility Solutions
7
Social Networking/ Online Solutions
8
Mobile Banking
Mobility Solutions
Union Bank of India and SBI have introduced mobile payment services in partnership with players like Nokia and Reliance Comm.
HDFC Bank partnered with Vodafone to get access to telcos select retailers to act as HDFC's sub-agents through which customers can deposit and withdraw cash through their mobile phone without having to go to bank branches
Reliance General Insurance adopted a mobile insurance POS platform which equips the RGICL affiliated insurance agents to sell policies directly at the customer's doorstep GoDB Tech
United Bank of India pull-based SMS enquiry services using Sybase 365 to automate customer enquiry processes
Social Networking
Online Solutions
Reliance Securities partnered with Atom Technologies to deploy an enhanced payment system to enable traders to make online payment via debit card to their brokerage accounts
ICICI Securities partnered with Microsoft to launch an online trading portal on Microsofts Silverlight 4.0 platform
BFSI players are looking at connecting with their customers through popular social media portals such as Facebook
ICICI Bank launched a Facebook application enabling its customers to directly perform banking transactions
Many banks including HDFC Bank and Axis Bank have created pages on Facebook to understand their fans as well as promote their banking products
Source: Press Releases, News Updates, Zinnov Analysis Note: 14
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BFSI vertical continues to offer significant opportunities for IT Services providers in India
Product License to Services Split Rational/ Other Insights
CBS 1:2 to 2.5 The longer the client is engaged, vendor makes money on multi-site roll out, upgrades, feature
customization etc.
CRM 1:1 One time implementation 1:1. With CRM there is very limited cross or up-sell opportunities
Collaboration 1:0.25 If the client enters into a services agreement with the partner the upsell could be 100% for services
revenue
Virtualization 1:1 Complete stack opportunity could go up to 1:12 (including hardware, software, services, network, etc.)
MW/ Platform 1:0.5 Professional services cost varies with choice of tier 1/ tier 2 SI. Also heavy discounts on licenses in India
System Mgmt. 1:0.6 Current adoption in mature industries. Extremely critical jobs. Lack of internal expertise
Mobility Apps 1:1 to 2 Heavy need of customization/ backend integration. OPEX models getting popular might reduce the
one time license cost
IT Services Earning Opportunities from BFSI Customers
Complete IT Infrastructure Management Mannapuram Finance engaged IBM for 10 years to build and
manage the entire IT infrastructure including all applications RBI signed a USD 55 mn, 10 year deal for CBS with Polaris
which included SI and maintenance services
Upgradation Players are engaging their existing IT partners for new projects
For instance, Bank of Baroda engaged its existing IT partner, HP, for the assessment and refresh of the bank's applications and IT infrastructure
ATM Managed Services Axis Bank signed an ATM managed services deal with Diebold
under which the IT vendor will support the bank with services such as ATM incident monitoring, vendor management, cash forecasting and replenishment services, caretaker services, etc.
Software Testing SBI General Insurance contracted Maveric Systems to provide
Software Testing and Validation services RBI engaged with ThinkSoft for software testing of its financial
services applications
Recent Deals
Services Driven Market
9
Source: Interview with Key Ecosystem Stakeholders; Press Releases, News Updates, Zinnov Analysis Note: 15
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Differentiated pricing structures provide impressive margins for IT services players
Business as Usual (70%)
New Technology Adoption (30%)
Software Hardware Services Software Hardware Services
Product + AMC (~70%) ~30% Product + System Integration/Consulting
Margin Range = 5-10%
Enterprise IT Spend
Shared Resources Deployed Margin Range = 15-20%
Product Margin Range = 5-10%
SI/Consulting Margin 25-40%
IS Outsourcing Support and Training
Customer Application Development
System Integration
IT Consulting Application Management
Source: Company Annual Reports; Press Releases & Shareholder Presentations; Zinnov Interactions with Senior Stakeholders Across Vendors; Zinnov Analysis Note:
Services Driven Market
9
16
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However, a variety of challenges are currently restraining the adoption of IT
Lack of standardization of processes and change management in public sector
banks
Limited internal IT talent and constrained budgets for smaller BFSI players
Fragmented industry amongst a number of service providers
Increasing security threats with the consumerization of IT
Regulatory compliance around data sharing and privacy
Key Industry Challenges for IT Adoption
Lack of success stories for emerging technologies like cloud computing, Big
Data etc.
Source: Zinnov Analysis Note: 17
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The supply side ecosystem is gradually evolving to meet the requirements from the demand side
Large and Mid-sized BPOs ~200
Mid and Small size Software Products ~1,100 players
Mid-sized 55-60 players
Large 20 players
Percentage contribution to
total domestic IT-BPO revenues
~60 per cent
~25 per cent
~5-6 per cent
~2 per cent
~5-8 per cent
Smaller Firms Providing IT Services and BPO ~11,000 players
MNCs ~150 Indian Product Companies ~400 Startups ~500-550
Supply Side Ecosystem in India
Large companies
Annual domestic revenues > INR 10 billion
Mid-size companies
Annual domestic revenues INR 1 billion to INR 10 billion
Smaller companies
Annual revenues < INR 1 billion
Web-development firms and freelancers ~5,000
Value added resellers ~4,000
Individual app-developers and freelancers ~1,600 Small & Micro BPO service providers ~500
Source: Zinnov Database of IT-BPO Companies in India; Primary Interviews with Stakeholders in the Indian IT Ecosystem; Zinnov Analysis Note: 18
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Foreign companies continue to dominate the domestic IT market
Domestic Market
Share by Revenues
HP Dell IBM HCL Infosystems Acer Cisco
Microsoft SAP Oracle Vmware Tally Ramco
IBM Wipro Infotech TCS HCL Technologies 3i Infotech CMS Infosystems
Foreign 63%
Indian 37%
Foreign 32%
Indian 68%
Foreign 84%
Indian 16%
Foreign 84%
Indian 16%
A Number of Key Players are Actively Focusing on the BFSI Vertical:
Source: Zinnov Analysis Note: 19
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Peer group companies focused on BFSI vertical are undertaking a host of initiatives to penetrate the Indian BFSI market
Channel Partner Strategies
Focus on developing efficient channel partner network
Key Initiatives by the Suppliers
Source: Press Releases, News Updates, Interview with Key Ecosystem Stakeholders, Zinnov Analysis Note:
IT Alliances by Peer Companies
Forging alliances to launch relevant solutions for BFSI customers
Organizational Alignment
Aligning organizational structure as per industrys needs
Expanding Presence
Expand organizational presence in India
Target Customer Segments
Renewed focus on SMB/ Tier-II level customers
Keeping Pace with Compliances
Launch products to cater to new regulatory compliances
Next Generation Products
Mobility solutions; cloud computing; BI; data analytics
20
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Going forward, the IT market in BFSI vertical is continue to grow
IT Spending in BFSI, USD billion
Cloud Computing and Virtualization
IT-enabled Business Transformation Solutions & Services
Simplified Banking Service Accessibility
Ban
kin
g 2
.0
Social Computing
Enhanced Security & Compliance Adherence
New Payment and Settlement Solutions and Systems
2.7 3.1
3.5
FY12 FY13E FY14E
Source: Primary Interviews with the CIOs; Zinnov Analysis Note: 21
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