Zinnov Management Consulting

IT Adoption in BFSI Sector in India

2012

This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or
reproduced for distribution outside the client organization without prior written approval from Zinnov.

India is a fast growing IT market; BFSI vertical constitutes a significant share of the
overall spending
USD billion

FY12

FY11

$13.7

Hardware

17.1%

$11.7

Distribution of IT Spending in India, FY12

Energy
15.7%
Government
15.4%

$12.6

IT
Services

Software
Products

BFSI
11.1%

14.4%

Manufacturing
28.8%

$11.0

$4.2
19.5%

$3.5

Total domestic IT market FY12

~ USD 30.4 billion

Telecom
7.2%

Consumers
11.9%
Others1
7.0%

Retail
0.4%

Education
1.5%
Healthcare
1.0%

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:

The rapid diversification of the sector including Banks, NBFCs and Insurance presents
huge IT opportunity
Over 97,000
Scheduled Banks in India

Unscheduled
Banks

(235)

Commercial
Banks (166)

Public Sector
Banks (26)
Nationalized
Banks (20)

Foreign Banks
in India (33)

SBI and its

Associates (6)

Co-operative
Banks (69)

Private Sector
Bank (21)

Old private
Sector Banks (14)

Regional Rural
Banks (82)

State Cooperatives (16)

New Private
Sector Banks (7)

Insurance Sector
(49)

NBFCs (12,409)
Registered and Regulated by
RBI

Urban Cooperatives (53)

Exemption from RBI

regulations and registration

Not registered but regulated

by RBI*

Loan Company

Insurance Companies

Mutual Benefit Finance

Cos. (notified nidhis)

Investment Company

Stock Exchange, Stock

brokers, etc.

Mutual Benefit Cos.

(potential nidhis)

Equipment Leasing
Company

Housing Finance
Companies

Misc. Non-Banking Cos.

(chit funds)

Hire Purchase Finance

Company

Micro Finance
Companies

Life Insurance (24)

Non Life Insurance

(24)

Reinsurance (1)

Residuary Non-Banking
Company
Source: RBI, IRDA
Note: *Not registered with RBI, but the RBI issues direction relating to deposit acceptance policy

After a slow growth phase during the economic downturn, the banking industry has
started growing rapidly again
Banking Key Trends
Innovative products and
platforms (virtual debit
cards, RuPay, etc.)

Focus on Financial
Inclusion (RBI, SBI, Punjab
& Sind Bank)

Performance Indicators for Indian

Scheduled Commercial Banks, USD billion
1,141
948

864

830

794

587

Foreign banks opening

branches in India (Woori
Bank, FirstRand Bank,
Westpac)
2007-08

2008-09

2009-10

Aggregate Deposits

Consolidation/
recapitalization of RRBs*
across India

Source: RBI; Company Websites; Zinnov Analysis

Note: *Regional Rural Banks

New banking licenses

from RBI (Maharashtra
State Cooperative Bank)

685

601

Single view of customer;

single point of access for
all Information

Branchless banking via

mobile, internet kiosks,
etc. (SBI, Union Bank)

Rapid geographic
expansion plans (SBI,
Indian Overseas Bank,
etc.)

2010-11

Bank Credit

Regulation and
compliance (IFRS, Basel
III, etc.)

Expansion into
investment banking and
other advisory services
(Axis Bank)

Financial Services and Insurance sectors are following suite and have shown promise

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

Financial
Services
Total Assets of Non-Bank Finance Companies
in India (end-March), USD billion
25

24

26

19

16

Gross Premium Underwritten by Insurers,

USD billion
64
2007

2008

2009

2010

56

52

2011

48

36

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
Source: RBI, IRDA
Note:

2007

2008

2009

2010

2011

Insurance
Life

Non-life

The growing business needs of BFSI players have led to a rapid adoption of IT in the
BFSI vertical
Key Drivers for IT Adoption in BFSI Vertical
Meet Regulatory
Requirements/
Security

Regulatory authorities like RBI, IRDA and SEBI release regular

mandates necessitating IT adoption for better services and
security

Improve Internal
Efficiencies

Key IT investments are targeted at

supporting the business growth plans of
BFSI customers

Customers are investing in IT

applications which help them better
align their business processes and
improve internal efficiencies

Support Growth
Strategies

Develop Customer
Experience

IT is helping BFSI players in extending

their reach to the unbanked population of
India

Source: Zinnov Analysis

Note:

Customers are looking

for IT solutions which
can help them
differentiate
themselves from their
competitors

New Channels for

Furthering Reach

as a result, the IT market has been growing at 13% YoY, with key adoption across all
domains
IT Spending in BFSI, USD billion

IT Spend Distribution
Hardware
~53%

2.7
2.4
FY11

Software
~15%

Services
~32%

IT Budgets as a Percent of Revenues

for BFSI: ~1.5-2.0%

Percentage Outsourcing in BFSI:

~60%

FY12

Key Recent IT Deals in BFSI Vertical

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

Source: Nielsen Domestic IT-BPO study 2010; Primary Interviews with Stakeholders in the Indian IT Ecosystem; News Updates; Company Websites; Zinnov Analysis
Note:

Compliance requirements and guidelines by governing bodies have played a key role
in driving IT adoption in the vertical
Recent Regulations & Guidelines Influencing IT Adoption
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
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

Encourage
Digital
Transactions
Compliance
Regulations

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

Security

An RBI committee earlier issued recommendations to

banks to enhance cyber security and has also
threatened actions against those who would not
comply

Financial
Inclusion
Initiatives

Encouraging
Customer
Friendliness

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
Source: RBI; News Updates
Note: *Credit Default Swap

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
9.4

Year-wise Number
of Deals Tracked
(indexed to 2007)

1.0

2008

2009

2008 & Earlier

4.3

2.7

1.6

2010

2011

2009-10

2012*

Present

0%

Key Solutions in
Demand
(Level-wise)

32%
11%

47%

27%

4%
19%
31%
11%
35%

Modern IT

Modern IT

31%
4%

7%
31%

10%

Modern IT

Complete Outsourcing/ Managed Services

Non-core

Large Banks/ FSI

Firms

Regional Banks/
Smaller FSI Firms

Core

Modern IT

Security/ System Solution/ Networking

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

Source: Press Releases, News Updates, Zinnov Analysis

Note: *2012 deals tracked till April; based on pro-rata value

A host of key focus areas is driving the adoption of IT in the vertical

Core Banking Solution

1
9

Business Enabling Solutions

Services Driven Market

8

IT
Adoption
Trends in
BFSI
Vertical

Social Networking/ Online Solutions

Peripheral Applications/ Solutions

Mobile Banking/ Mobility Solutions

Security and Compliance

Business Intelligence

Source: Zinnov Analysis

Note:

Cloud and Virtualization

10

While CBS continues to be a key area of focus, players are investing in solutions
which can help them in solving targeted business issues
1

Core Banking Solutions

Regulatory Guidelines and Growth Driving CBS Adoption
among RRBs and Co-operative Banks
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
Nawanagar Co-operative Bank adopted CBs
on cloud (IBM Implements OMNIenterprise)

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

Source: Press Releases, News Updates, Zinnov Analysis

Note: *Enterprise Project Management

Business Enabling Solutions

Indian BFSI players are looking for solutions which can help
them in better aligning their business processes
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

Non-core applications and security/ compliance solutions are expected to continue

witnessing demand in the sector
3

Peripheral Applications/ Solutions

F&A Solutions

Security and Compliance

Compliance

IDBI Bank deployed Oracle Hyperion

Planning to create budgets and rolling
forecasts that are linked to its balance sheet
and profit and loss models

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

HDFC Bank deployed a treasury solution

to help manage the transaction
processing systems TCS Bancs

Collaboration

CRM

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

Source: Press Releases, News Updates, Zinnov Analysis

Note:

While Yes Bank is planning to pilot ADF

soln., 4 Indian banks have already
adopted WKFS ADF Soln.

Security
Bajaj capital adopted solutions from
Juniper to improve network efficiency as
well as increase security standards
Axis Bank has deployed SatNav's amantra FM Product to map all its offices
in great detail to capture property
information, the layouts of each location,
etc.

12

New technologies such as cloud/ virtualization and Business Intelligence (as a result
of ADF) are picking up
5

Cloud and Virtualization

Business Intelligence
BI is emerging as an attractive proposition for BFSI players
to develop targeted customer insights

Virtualization
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

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.

Cloud Computing

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

Source: Press Releases, News Updates, Zinnov Analysis

Note:

Yes Bank has built an in-house BI

solution for better understanding of
customers and their behavioral
patterns

13

Need for mobile banking and social networking have emerged as essential for the
next generation services in the vertical
7

Mobile Banking/ Mobility Solutions

Mobile Banking
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

Social Networking/ Online Solutions

Social Networking
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

Mobility Solutions
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

Source: Press Releases, News Updates, Zinnov Analysis

Note:

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

14

Services Driven Market

BFSI vertical continues to offer significant

opportunities for IT Services providers in India
IT Services Earning Opportunities from BFSI Customers
Product

License to Services Split

Rational/ Other Insights

CBS

1:2 to 2.5

CRM

1:1

Collaboration

1:0.25

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

The longer the client is engaged, vendor makes money on multi-site roll out, upgrades, feature
customization etc.
One time implementation 1:1. With CRM there is very limited cross or up-sell opportunities
If the client enters into a services agreement with the partner the upsell could be 100% for services
revenue

Heavy need of customization/ backend integration. OPEX models getting popular might reduce the
one time license cost

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

Recent
Deals

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.

Source: Interview with Key Ecosystem Stakeholders; Press Releases, News Updates, Zinnov Analysis
Note:

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

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

15

Services Driven Market

Differentiated pricing structures provide impressive

margins for IT services players
Enterprise IT Spend

New Technology Adoption

(30%)

Business as Usual
(70%)

Hardware

Software

Product + AMC (~70%)

Services

Hardware

~30%

Software

Product + System Integration/Consulting

Margin Range =
5-10%

IS Outsourcing

Support and
Training

Product Margin
Range = 5-10%

Customer Application
Development

Services

IT Consulting

Application
Management

SI/Consulting
Margin 25-40%

System
Integration

Shared Resources Deployed

Margin Range = 15-20%
Source: Company Annual Reports; Press Releases & Shareholder Presentations; Zinnov Interactions with Senior Stakeholders Across Vendors; Zinnov Analysis
Note:

16

However, a variety of challenges are currently restraining the adoption of IT

Key Industry Challenges for IT Adoption
Lack of standardization of processes and
change management in public sector
banks

Regulatory compliance around data

sharing and privacy

Limited internal IT talent and constrained

budgets for smaller BFSI players
Increasing security threats with the
consumerization of IT

Fragmented industry amongst a number

of service providers

Lack of success stories for emerging

technologies like cloud computing, Big
Data etc.

Source: Zinnov Analysis

Note:

17

The supply side ecosystem is gradually evolving to meet the requirements from the
demand side
Supply Side Ecosystem in India
Percentage
contribution to
total domestic ITBPO revenues

~60 per
cent

~25 per
cent

~5-6 per cent

~2 per cent

~5-8 per cent

Large
20 players
Mid-sized
55-60 players

Large
companies
Mid-size
companies
Smaller
companies

Annual domestic revenues >

INR 10 billion
Annual domestic revenues
INR 1 billion to INR 10 billion
Annual revenues < INR 1
billion

Large and Mid-sized BPOs

~200
Mid and Small size Software Products
~1,100 players
MNCs
~150
Indian Product Companies
~400
Startups
~500-550

Smaller Firms Providing IT Services and BPO

~11,000 players
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

Foreign companies continue to dominate the domestic IT market

Foreign
63%

Indian
37%

Foreign
84%

Indian
16%

HP
Dell
IBM
HCL Infosystems
Acer
Cisco

Microsoft
SAP
Oracle
Vmware
Tally
Ramco

Domestic
Market
Share by
Revenues

IBM
Wipro Infotech
TCS
HCL Technologies
3i Infotech
CMS Infosystems

Indian
16%

Foreign
32%
Indian
68%

Foreign
84%

A Number of Key Players are Actively Focusing on the BFSI Vertical:

Source: Zinnov Analysis

Note:

19

Peer group companies focused on BFSI vertical are undertaking a host of initiatives
to penetrate the Indian BFSI market
Channel Partner
Strategies
Organizational
Alignment

Focus on developing efficient

channel partner network

Aligning organizational
structure as per industrys
needs

Expanding Presence

IT Alliances by Peer
Companies
Forging alliances to launch
relevant solutions for BFSI
customers

Key Initiatives by
the Suppliers

Expand organizational
presence in India

Keeping Pace with

Compliances
Launch products to cater to new
regulatory compliances
Source: Press Releases, News Updates, Interview with Key Ecosystem Stakeholders, Zinnov Analysis
Note:

Target Customer
Segments
Renewed focus on SMB/
Tier-II level customers

Next Generation
Products

Mobility solutions; cloud

computing; BI; data analytics

20

Going forward, the IT market in BFSI vertical is continue to grow

IT Spending in BFSI, USD billion

2.7

FY12

3.1

FY13E

IT-enabled Business Transformation

Solutions & Services

Simplified Banking Service Accessibility

Source: Primary Interviews with the CIOs; Zinnov Analysis

Note:

FY14E

Social Computing

Banking 2.0

Cloud Computing and Virtualization

3.5

Enhanced Security & Compliance

Adherence

New Payment and Settlement Solutions

and Systems

21

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