Flexcel participated in Sahakar Setu, 2007

Flexcel was a co-sponsor at the event ‘Sahakar Setu, 2007’, organized by GUCBF (Gujarat Urban Cooperative Banks Federation). More than 300 cooperative banks, most of them from Gujarat, participated in the event.

In a landmark decision, which will go a long way in strengthening the beleaguered cooperative bank sector, the National Federation of Urban Cooperative Banks & Credit Societies has given a nod to 1853 cooperative banks in the country and brought them under one single network. The federation formed a committee to create this network to help Internet banking transactions of cooperative banks across the country. The President of NAFCUB announced that the federation has already started dialogues with various big cooperative banks and state federation of cooperative banks to create a single network.

The GUCBF’s decision to create an umbrella network for all banks is likely to script the growth story of cooperative banks in the state. In Gujarat, there were around 300 cooperative banks with more than 980 branches and deposit strength of Rs 14,800 crore, and working capital of Rs 23,700 crore in 2005-06.

IBS Report

Once the remaining public sector banks* decide on a core banking solution (CBS), what will be the future of CBS in the Indian market? All the new generation private banks already have it in all their branches, and there are no indications yet of any CBS replacement plans at any of these banks. All the major old private banks too have made their selection, though some of these are still to roll it out in all of their branches. A couple of large multi-state co-operative banks like Cosmos Bank and Saraswat Bank are already on the CBS.

Will the smaller private banks, district co-operative banks, local area banks, and regional rural banks, continue with their legacy distributed architectures or shift to CBS? There are a few reasons that suggest that these banks will need to shift to CBS eventually. The need for compliance, such as anti-money laundering and transparent reporting is one of these reasons, the other being the availability of support from their erstwhile branch automation solution providers, who themselves are finding it difficult to remain in business as their new sales have almost dried up, and installed base is shrinking as the CBS rollout progresses.

Consolidation among this category of banks has already begun, and is likely to gather momentum in the near future. A new genre of users, the large NBFCs catering to micro-finance, is also emerging.

On the downside is the incapability of these banks and institutions to afford the cost of licensing and implementing a CBS, on account of their size. The only way out appears to be the hosted model (also known as application service provider or ASP model). The model was contemplated to be introduced in India by a couple of suppliers earlier but was abandoned after studying the resistance to the model in India.

i-flex solutions and HDFC Bank had joined hands four years ago with equal equity partnership to set up Flexcel International Pvt Ltd, to offer i-flex's CBS solution, FLEXCUBE®, on an ASP model to smaller banks. Lord Krishna Bank (LKB) was the first customer to be signed up, which also later picked up 20 per cent stake in the venture. A fourth equity partner is likely to join Flexcel shortly. However, Flexcel could not get its second customer until this year.

'Security of customer data has been a major concern of banks in India, which explains the initial resistance to the ASP model,' says Venkat Subramanian, Flexcel - chief executive officer. 'The model works well in other parts of the world, so it has been more of a cultural issue.' Another issue in the ASP model relates to pricing of the services. Various schemes are possible - a mutually agreed flat monthly rate, fee-per transaction, or per account.

The successful implementation for LKB has provided the much needed proof-of-concept. 'The bank has brought 54 of its 112 branches on FLEXCUBE® on ASP, which have been running smoothly,' informs Subramanian. He feels that the rest of branches are too small to make it cost-effective for the bank to bring these under FLEXCUBE®. These 54 branches account for over 92 per cent of the bank's business.

During the past four years, Indian Banks have increasingly realized the benefits of outsourcing. The difference between a totally outsourced CBS infrastructure along with managed services and leasing of IT assets, and the ASP model is not very big. The shift from a 'do-it-yourself' and ownership of IT infrastructure mindset has been quite significant in these years.

Has the time for CBS on ASP model arrived for banks in India? Seems likely, since Flexcel has been able to sign up two more customers recently for the ASP model. One of   these is State Bank of Mauritius (SBM) in India, which presently has three branches in Mumbai, Chennai and Hyderabad. 'The decision allows SBM to have the same CBS solution for its Indian branches, since it has licensed FLEXCUBE® for its Mauritius branches,' explains Subramanian. The bank plans to expand its branches in India now.

Another recent customer is Kollam Cooperative Bank in Kerala. Kerala State Cooperative Bank had licensed the Linux version of FLEXCUBE® last year. Three of the 40 branches of Kollam Bank have been converted to the ASP model. 'The ASP services to Kollam Bank are being provided from Kerala State Cooperative Bank servers,' informs Subramanian. Four other cooperative banks in Kerala are expected to join this model. Flexcel also undertakes branch rollout services to those banks that have licensed FLEXCUBE®, the notable examples being Kerala State Cooperative Bank and Lakshmi Vilas Bank.

Apart from these three banks, Flexcel has also been able to rope in Asia Financial Corporation, an entity involved with micro-finance. All eighteen units of this entity have been ported to the ASP model in a period of three months from the signing of the contract. To augment its revenues, Flexcel also provides application management services to a couple of banks in the Middle East, for products that do not compete with FLEXCUBE®. The company has recently taken up one such contract for a mutual fund product for First Gulf Bank.

* Dena Bank, United Bank of India, Punjab & Sind Bank.