India’s financial institutions including banks are spending less revenue towards information technology (IT), a report by global consultancy company Boston Consulting Group showed. “Historically, Indian financial institutions have allocated a lower percentage of their revenue to IT spending compared to global peers. Global banks typically invest 7 percent - 9 percent of their revenue on IT costs while Indian banks allocate only up to 5 percent,” the report said.
It also highlighted that the core IT infrastructure of banks has less resilience towards new age challenges in the field. “The core banking infrastructure of Indian banks, mostly set up in the 1990s,
used monolithic x86 architectures, which allowed the banks to unburden themselves from the inefficiencies of mainframe architectures meant for managing large banks with branch networks.
However, this resulted in tightly coupled systems, built on a single tech stack, and unsuitable for horizontal scaling. The added burden of handling real-time transactions and advanced technologies is increasing the downtime of banks,” the report added.
Need for innovation
The BCG report highlighted that when it comes to technology, banks in India are not up to date with the increasing customer demand. “The banking and financial services industry is not immune to the evolving expectations of consumers and changing needs of customers. Banks have been adopting an omnichannel model, to provide customers with a seamless experience across online and offline channels,” the report said.
Most of the banks in India have a core IT system that operates on an outdated architecture. This, as a result, leads to higher spending for maintenance and other operations, BCG said. “The high cost of maintenance has resulted in tightly coupled systems, built on a single tech stack, and unsuitable for horizontal scaling,” it said.
Regulatory checks
The BCG highlighted that regulators including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) have been frequently publishing guidelines around resiliency, distance between primary and secondary sites, and confidential computing in their framework for adapting cloud service providers.
These guidelines, the BCG report said, have implications on core systems of banks, majorly on innovation.
“Financial institutions need to stay agile in their innovation pursuits while maintaining a strong focus on meeting all regulatory and compliance requirements,” the BCG report added.
Some of the Indian banks have in the past increased their IT spending. For instance, Sandeep Batra, executive director, ICICI Bank, had earlier said that IT resilience and customer security were of paramount interest to the bank. “This is not constrained by any budget. In fact, since 2019, our IT and cyber security spending as a share of overall spending have moved up from 5.6 percent to 9.4 percent,” Batra said.
Similarly Bank of Maharashtra MD & CEO Nidhu Saxena said the lender’s IT spending has increased over the years. It spent Rs 800 crore in 2023 for IT and digital services, Rs 900 crore in 2023 and is aiming to spend more than Rs 1,000 crore in 2024.
This came after the banking sector experienced glitches in the digital and IT space.
For instance, some customers of Uco Bank had in November 2023 experienced technical glitches where certain transactions initiated by account holders of other banks had been credited to their account.
Additionally, the regulator has pulled up some lenders for inadequate IT infrastructure and has barred them for activities such as on-boarding clients digitally or issuing credit cards. In April 2024, the Reserve Bank of India (RBI) asked Kotak Mahindra Bank to stop on-boarding new customers through its online and mobile banking channels and to stop issuing fresh credit cards.
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