M/AIRIK/E|T Poet Kalpesh Desai, CEO, Agile Financial Technologies, spoke to ‘Nivedan Prakash about trends in the banking industry and his company's foray into the Indian microfinance business Has the Indian banking industry ‘come of age and what role has IT played in it? T think we must give credit to the RBI for inducting IT into Indian banks through its two committee reports on the subject (known, as the Rangarajan Committee reports) in the 1980s, which was character- ized as an era in which Indian banks embraced IT ‘The growth riven by expansion to untapped geographies continued unabated, resulting in near backlogs of management information systems (Mis). At this time, there was virtually ‘no competition in the Indian bank- ing market, which by IT usage was divided into foreign banks, large Indian banks with product level automation in branches, some rudi- mentary corporate computerization and a large expanse of private and co-operative banks in manual mode. The in-house IT infrastruc- ture in most Indian banks at the time consisted of software running on UNIX boxes and_terminals installed at controlling offices, They ‘were largely used for batch process- ing using COBOL. All software run- ning on these UNIX boxes was cus- tom but, Then came the 1990s and the first change was the adoption of Basel I recommendations that brought credit risk management and capital adequacy into sharp focus for the fist time, Further in 1994, new private banks were allowed ta incorporate. Towards the clase of the decade, Y2K doomsday fears largely fueled the demand for IT services and products in the Indian banking industry. It was the RBI, once again, which prompted action. In 1994, it forced public sec tor banks to begin total computer: zation of their branches and macle it ‘a pre-condition for granting licenses to new private banks. This paved the way for the entry of branch banking software enabled by Core Banking Solutions (CBS). Electronic Bill Presentment & Payment (EBPP) and Internet Banking offerings also made their appearance. ‘What are the key technologies that have been used by Indian banks? ‘While leading foreign banks and a few next generation private banks in India had adopted centralized banking products in the 1990s, the centralized banking scene in India got its wind up in the beginning of the current millennium, once the Y2K battle was over. Then came the phase (which still continues) of compliance and risk related soft ‘ware products such as anti-money laundering, analytics, and the asso- Ciated infrastructure, including data warehousing and data mining eapa- bilities. In the last few years, almost all banks in India have adopted CBS technology, and gone on to set up ATM networks, Internet banking, RIGS systems, and mobile banking. ‘A number of banks today are con- sidering investments in niche soft- ware that will allow them to tap existing opportunities in microti- hance. With banks now falling over each other to acquire customers, {both retail and corporate), cus tomer relationship management systems are seeing a lot of traction. ‘Additionally, the need for regulato- Fy compliance will drive future technology spending, The cen luestage has therefore been cap- tured by risk management, pay. ‘ment systems, business intelligence and managed services, Do you see a market opportunity in the Indian microfinance vertical? ‘As in other developing coun- tries, most_ Microfinance Institutions (MFIs) lack the infra- “Regulatory compliance requirements will drive future technology spending’ structure, both technological and physical to ensure that their objec: Lives of financial inclusion are cov- red. We desire to collaborate with financial institutions that can reach into rural and urban areas and olfer our software as a platform through tiem to service these MFIs. The key pain areas of these MFIs are the absence of appropriate technology for customer/member enrollment strong credit scoring tools particu: larly since there is litle or no collat: eral_ provided by micro-entrepre- nneurs; limited reach into the rural and urban areas to facilitate collec- tons and other transactions; the need to deploy biometric/smart tard authentication technology for ‘member identification and verfica- tion; compliance with statutory bodies; and reporting back to donor Institutions. Wo can resolve these issues by provisioning our software as a sorviee solution and provision. ing of mobile handheld devices that would help in capturing transac: tions in the field, Working with partner institutions that can collect moneys and deposits on behalf of the MFls, the model that we will pursue is to share in the fee income of these institutions. Agilis Universal Microfinance Solution is ‘multientity and can help a partner financial institution to service mul- tuple MFIs. ‘What solution do you have for the Indian microfinance industry? ‘A microfinance institution is a sustainable business considering the spread between the cost of sourcing funds and the interest/profit charged to borrowers, The non-per formance asset ratio is substantially Jow in this sector, particularly due to the peer pressure present amongst borrowers, who tend to approach ‘MEls in groups. We can ensure that ur state-of-the-art technology can bbe made both accessible and afford- able for MFIs to adopt, allowing them to become a lot more agile in their operation and focus on their core business of financial inclusion and welfare. Our pricing mechanism which is to partake in the fee Income would ensure that there are litle or no upfront costs for the ‘Mls, leaving much needed capital ‘tobe deplayed where it was original Intended, which is to increase the lifestyle of the microventrepreneur and to facilitale the micro- business. Darn COMPUTER] 1.