Competitive Advantage of Information technology in banking sector of Nepal

Case:

Competitive Advantage of Information technology in banking sector of Nepal

(Special focus on Bank of Kathmandu & Rastriya Banijiya Bank)

28^th January 2008

Trends in Banking Sector

Nepalese banking sector has seen drastic changes over a short span of time. When most of the businesses are going through the tough time, Banks seem to be doing relatively quiet well with the rise in the number of banking institution in the country. Also the major shares traded in NEPSE belong to the banks as people prefer to invest more on them. The primary reason behind which is the transparency in the business and the growth or advancements that banks are achieving.

There were days when National bank Like Rastriya Banijiya Bank (RBB) were operating with the very few services that mostly relied on the employment concept, i.e. unavailability of technology and depending upon the employees for all processing. Today, the entire scenario is changed in case of private bank like Bank of Kathmandu (BOK) that operates with several effective services and relies mostly on the information technology for their business operations.

Legacy System in Banking Sector

The operations of the bank was operating in legacy systems were a victim of red-tapism as it involved several steps for activities which could be solved in a click of a button. The mere process of clearing a cheque began with.

• One staff provide token for the cheque produced in counter
  
• Second one verify the balance in account holders account
  
• Third staff verifies the signature of the cheque
  
• Fourth step, authorized person approves the cheque for final payment
  
• Fifth, assistant teller count the money
  
• Finally the senior teller reconfirm the cash and make the payment
  

Customers to withdraw money from their own account would have to go through time consuming processes. On the other hand it is costlier for the bank itself also because it has to recruit six to seven people to handle small job like payment of cheque. This was just an example of the long and winding way of doing things in one of the situations. The same kind of problems prevails in other activities as well. As a result despite of being pioneer bank of Nepal, people preferred private bank and those tedious times consuming procedure would eventually lead to closing of the accounts and shifting to a new bank which provides better services promptly.

In order to avoid losing customers IT intervention was more than necessary for the institution. So it made a quick survey on it and the resultant was Finacle, Globus, Pumari Plus etc . This Functional Business Systems brought everything to a common platform and greatly helped to reengineer the process.

There came various advantages after implementing IT in the banking industry.

• Firstly it increases the accuracy. There includes number of staff in legacy system to complete one function and remain maximum chances of inaccuracy in transaction
  
• Secondly it reduces the cost because only few numbers of staff are needed to complete the function with the support of IT. With IT excess number of staff are laid off which would further reduce the cost of operation.
  
• Thirdly IT increases the efficiency of the employee and which further increases the satisfaction level of staff as well as customer
  
• Fourth, IT implementation save huge amount of time of customers and staff
  
• Fifth, IT change the whole banking industry radically
  

IT implemented Banking System with special reference to BOK

Bank of Kathmandu Limited has become a prominent name in the Nepalese banking sector. Today it has become a landmark in the Nepalese banking sector. One of its main objectives is:

• To use the latest banking technology to provide better, reliable, and efficient services at a reasonable cost.
  

In pursuit to deliver the products and services of the highest standards, Bank of Kathmandu has state-of-art technology for appropriate and efficient Management Information System (MIS) for rendering quality services. It uses VSAT and Radio Modem for networking, for effective and proficient execution of banking services and centralized banking operations for better risk management, consistent service deliveries and lowering operating cost.

BOK is using Finacle as its major banking application software which is certified by Information Technology Association of America (ITAA) for using certified processes and methods.

Now- a-days the calculation of figures is not that tough, due to the concept of MIS is been introduced in the Bank. All the financial transactions are customized by the system. In BOK, MIS has been used by every department. It uses intranet to link the various departments like Accounts and Research and Development department.

The operations of IT implemented bank carries out its cheque payment in least time with few staff which further reduced the human resource drastically at the same time save huge amount of money and time.

The comparative figure of banking system with legacy system and IT implementated with focused on one department only is given in tabular form below

System Analysis based on cost
	Legacy System, Nepal Bank Ltd			BOK, IT implemented
		Time Taken(Min)			Time Taken (Min)
1	Token Provider	2	5000	Teller	3	10,240
2	Balance Verifier	5	5000
3	Signature Verifier	6	5000
4	Chief Accountant	2	5000
5	Asst Teller	3	5000
6	Teller	2	5000
		20	30000		3	10,240
	Saving (30000-10240) * 3		59,280	Average Number of Teller, 3 in each branch
	Per year Saving		59,280*12	711,360
	No of Branches			18
	Annual Saving			12,804,480
	Time Saved			17 minute per transaction

The above table is based on the approximate figures of the salary of the legacy system followed in the RBB and the IT implemented BOK. This is focused only on the cheque payment procedures of the bank. It is seen that there is the annual cost saving of around 1.2 crore by reengineering the simple business process by the use of IT .So, the analysis if expanded further to overall business processes, just imagine the cost benefits it generates.

Besides cost, it increases the efficiency of the employees, saves time for all, and makes the job easy for both the employee and the customer, rendering higher degree of job and customer satisfaction.

MIS is helping the daily decision making. Forecasting is made on the basic of the data received from the MIS and the deviation from the planned forecast is very little. Almost ninety-eight percent of the forecast made is accurate. And on the basis of this forecast the decision is made.

Summary

Major Findings:

• The major data source/ banking software of BoK is Finacle.
  
• Daily MIS report is e-mailed to the senior executives to provide up-to-date analysis of the report.
  
• Technical literacy requirement is needed for the implementation of MIS.
  

Problems/ Demerits of MIS:

• Out of 200 employees in the bank, only eighty users are allowed to use MIS due to the cost factor, as the bank has to buy the software from Indian company paying high amount in the beginning and again it has to pay huge amount every year.
  

Recommendation

The existing system is very systematic and scientific as they are using Finacle Software which itself is a MIS. It is very secure, economically, technically and operationally feasible at the bank. So no reengineering is required particularly in Finance. However, Finacle can be upgraded to the new version since the bank is using finacle 6.2 version when there is finacle 10 available in the market.