The recent outages that disrupted digital operations in two major banks in India, HDFC Bank and State Bank of India, has sparked a debate about the need for increased tech investment by Indian banks.
Sure, banks might need to invest more in IT systems. But simplifying the processes to ensure that these issues are resolved quickly is the need of the hour, say experts.
Last month, HDFC Bank customers faced disruptions in the digital services. It was not the first time. The bank had faced two outages in 2018 and 2019 as well. In December 2018, the bank’s new mobile banking application crashed as it was not able to handle the increased customer traffic. Next year, in December, technical glitches in one of the data centres affected digital banking transactions.
The outage on November 21, 2020, too, was attributed to the power outage in its primary data centre.
In case of SBI, its customers were unable to transact using its YONO app last week due to a technical glitch. In December 2019, customers faced an outage as the platform was not prepared for growth in volumes.
Does it mean Indian banks don’t invest in IT?
Not really. Executives pointed out that Indian banks are investing in technology and are partnering with companies like IBM and Oracle. For instance, IBM worked with SBI to create the digital banking platform YONO.
In a recent interaction with Moneycontrol, IBM India executives had said that they are working with large banks to build platforms to cater to small and medium enterprises and corporate clients.
In an earlier interaction, Mitesh Agarwal, Vice President, Sales, Global key and lead accounts, Oracle India, said banking and financial services in India is one of the largest and key business verticals for the company’s cloud business.
“Unlike the global scenario, where investments from banking clients are coming down, India’s case is just the opposite," Agarwal had said.
A recent Gartner survey revealed that Indian banks’ digital transformation exercise gained momentum and banks’ investments in IT would be $11 billion in 2020, a 9 percent increase compared to 2019.
An analyst pointed out that Indian banks, on an average, spend 2-3 percent of their revenue in technology. However, it might differ from one bank to another.
Sarath Varghese, Director, Delivery and Partner Relation, Indusone Business Solutions, said that large Indian banks could spend as much as 2-3 percent in information security. Additional investments are also made in creating a suitable technology infrastructure, including servers, he said.
So where does the problem lie?
The challenge for Indian banks lies in investing in the right capabilities at the right time and complying with complex processes laid down by the Reserve Bank of India (RBI), say experts.
Let us look at the reasons why the outage could have happened in the first place.
One: At the back of COVID-19, digital transactions surged.
Varghese of Indusone Business Solutions explained that due to restrictions following the lockdown, banks saw even senior citizens turning to online transactions. This led to a considerable surge in traffic. “Let us say, in a day, a bank has about 10 lakh transactions, it could be about 13 lakh last month,” Varghese pointed out.
Pareekh Jain, founder, Pareekh Consulting, pointed out banks were just not prepared for the spurt in digital transactions in such a short time.
Two: Even if you anticipate the need for additional servers, it takes time since the processes are highly defined.
“So if I want to request a server to be made available, the actual time it takes to get a server ready is 1.5 hours, at best. However, the processes involved from the time you fill up a requirement to get it approved would take a month to get the server approved,” explained Varghese.
This delay is avoidable.
Three: Though servers, where data is stored, belong to banks, they are run by third-party firms, which handle the day-to-day operations. Banks do not have control over how this is managed.
Given the current situation, as part of cost-cutting measures, banks have negotiated with vendors for a price cut for the services. Vendors, as a cost-cutting measure, could have cut down the number of people on the shifts, who monitor the transactions, when there is a surge.
“We try to evaluate and see the bigger picture, if the power went down or the network went down, it could have been something as simple as a person not being on the shift and not doing a particular activity,” pointed out Varghese.
Four: An executive with a tech firm who works with major banks in India said that as digital transactions grow, banks should invest in analytics capability to get insights on customers and traffic to predict intelligently when there would be a surge and downtime so that a bank can accommodate resources effectively.
“In this aspect, not everyone is up to the mark,” the executive added. The failure of intelligence systems in predicting the surge could result in outages as well if enough resources are not allocated at that point in time.What is the way out?
Frequent outages at a time when there is a huge push for digital payments is definitely not what banks or customers want.
According to reports, daily transactions stands at 100 million with a volume of Rs 5 trillion, currently, and is set to jump to 1.5 billion transactions worth Rs 15 trillion in five years.
To handle such transactions, the banking IT infrastructure should have robust security systems and infrastructure to ensure that transactions are safe, and data centres are prepared to handle the scale.
This includes moving to cloud, which would give banks the scalability and flexibility. Banks would also need to invest in AI and machine learning capability that is intuitive to customer needs. More needs to be done on both accounts, an executive added.
As transactions grow in scale, there is a huge demand for analytics capability, which, as we saw earlier, is needed to create intelligent models using AI and machine learning for predicting transaction volumes at any time of the day.
At the same time, executives and analysts who spoke to Moneycontrol point out that as much as there is a need for banks to invest in latest technologies, processes too need to be simplified for both small and large banks, which is a challenge right now.