
Private banks are facing a significant increase in information technology (IT) expenses due to the shift towards digital transactions. Unlike the one-time capital expenses incurred during the migration to core banking systems, IT expenses have become a recurring cost, accounting for up to 10% of the banks’ operating expenses.
Continuous Investment in IT Capabilities
Bankers emphasized that investments in IT capabilities are an ongoing process and cannot be considered as a one-time effort. In response to queries about their level of IT capabilities, bankers highlighted that technology investments now cover a wide range of areas. These include handling billions of monthly transactions across various channels, integrating with other businesses and services, leveraging analytics for targeted sales, and utilizing artificial intelligence for customer service without human involvement.
Concerns of the Reserve Bank of India (RBI)
The Reserve Bank of India (RBI) is concerned about the scale-up in the use of technology by banks. The RBI aims to ensure that banks have made the necessary investments in systems to handle the volume of transactions, protect against fraud, and have a backup in case of any disruptions.
IT and Cybersecurity Spending
Private banks have reported an increase in IT and cybersecurity spending. Sandeep Batra, Executive Director of ICICI Bank, stated that their IT and cybersecurity spending as a percentage of overall spending has risen from 5.6% to about 9.4% between 2019 and the current fiscal year. ICICI Bank expects technology spending to continue growing at a faster pace than overall expenses, although the rate of growth of tech expenses may moderate.
Addressing Issues Raised by RBI
The issues highlighted by the RBI in the case of Kotak Mahindra Bank, such as managing IT equipment, updating software, controlling user access, vendor risk management, and data security strategy, are part of the RBI’s supervision checklist for banks. Bankers emphasized that these issues need to be constantly addressed and cannot be considered as one-time efforts.
Technology Expenditure in Specific Banks
- IndusInd Bank spends 8-10% of its total expenditure on information technology. The bank has a board-level committee responsible for evaluating its technology capabilities.
- Yes Bank’s IT expenditure has increased by 17% to Rs 1108 crore in FY24, which is almost 30% of the bank’s staff expenditure. The expenditure includes operational expenses and depreciation.
- Axis Bank has made investments to handle the surge in digital transactions while ensuring system resilience and data security. The bank has implemented a strong and modern technology architecture, separating the core banking system from the middleware and frontend systems where most transactions occur.
Overall, private banks are recognizing the importance of continuous investment in IT capabilities to meet the demands of digital banking, ensure cybersecurity, and comply with regulatory requirements.
I have seen the powerful section choosing a wrong Core Banking Firms and started work but eventually the firm could not effect the link between the branches . Thereafter spending a collosus amount in the wrong venture the Banks started the uniform Core Banking Solution which is still in vogue now
The same thing is happening for installation of cybersecurity and data
security measures. It is entailing extra cost . Let the pvt Bank sit together and choose a vendor for an uniform mechanism .
Otherwise costs will multiply.
Ashish Bardhan
9748916901