Con­fer­ence Re­port

Banking Frontiers - - Highlights -

Manoj Agrawal: The year 2016 was a tough year for the fi­nan­cial sec­tor. But that does not stop the sec­tor from grow­ing. How are you pre­par­ing for this growth keep­ing in mind the ob­sta­cles that may come?

Parag Joglekar: In ear­lier times, ex­pan­sion was about in­creas­ing your foot­print across ge­ogra­phies and hav­ing more num­ber of peo­ple, so as to ex­pand your topline. Now, ex­pan­sion has var­i­ous an­gles, in­clud­ing ge­o­graph­i­cal foot­print, dig­i­ti­za­tion and tie-ups with var­i­ous plat­forms. The new kid on the block is ro­bot banks or ro­bot of­fices that can run 24x7.

Trivikram Ka­mat: You need to have one team in the or­ga­ni­za­tion whose fo­cus is to look at what can be done dif­fer­ently and what new can be done. We need to fig­ure out what fin­tech star­tups are dong and see at what point of time we can in­cor­po­rate some of their tech­nolo­gies into our busi­ness.

Sameer Ka­math: Star­tups may or may not make money, but they dis­rupt the way cur­rent busi­nesses are hap­pen­ing. One of the crit­i­cal things for any large es­tab­lished or­ga­ni­za­tion is to fo­cus on what is its core and what is it right for its cus­tomers. Se­condly, they should build as much client in­tel­li­gence as pos­si­ble. To­day, data has be­come the big­gest as­set for any fi­nan­cial sec­tor or­ga­ni­za­tion. It is not AI but it is the user of the AI who is go­ing to be the dis­rup­tor. Even in dig­i­tal, there is a lot of non-value-added work.

Shan­tanu Syam: The cur­rent ecosys­tem is push­ing BFSI com­pa­nies to be­come fin­tech com­pa­nies. One key re­quire­ment is to have a very ag­ile team which is fully aware of the changes in the en­vi­ron­ment. Things like Aad­haar are life

Bank­ing Fron­tiers or­ga­nized a con­fer­ence on ‘Ag­ile Ex­pan­sion & Trans­for­ma­tion’ in Mumbai. SAP Ariba was the knowl­edge part­ner:

chang­ing. Com­pa­nies now don’t need to go and rein­vent things. The op­por­tu­ni­ties are more than the ob­sta­cles.

Manoj: Ag­gre­ga­tion has be­come a very good growth mantra for the top line. A bank is an ag­gre­ga­tor of money, tech­nol­ogy, se­cu­rity, trust, risk man­age­ment, etc. How can banks be bet­ter ag­gre­ga­tors?

Prashant Mo­hta: We are com­pletely ag­gre­ga­tors. We don’t man­u­fac­ture broking stock mar­ket trans­ac­tions. We just an­a­lyze the trans­ac­tion for in­sur­ance, mu­tual funds, wealth, prop­erty, etc. Col­lab­o­ra­tion will work; what is im­por­tant is how you deal with cus­tomer safety, se­cu­rity and in­for­ma­tion.

Parag Joglekar: In this dig­i­tal world, the cus­tomer is not com­ing to you only be­cause you are col­lab­o­rat­ing and giv­ing him ev­ery­thing at one in­stance. He is com­ing to you be­cause it is con­ve­nient and it is cheaper as well. To­day, the switch­ing costs for the cus­tomers is very low. It is not just your value ad­di­tion in terms of putting ev­ery­thing to­gether but also giv­ing you at a price.

Raghaven­dra Joshi: There are very large or­ga­ni­za­tions which have de­vel­oped cer­tain com­pe­ten­cies. There are some smaller or­ga­ni­za­tions which have cer­tain niche strengths or niche do­mains. Ag­gre­ga­tors have been able to pro­vide value to the cus­tomers in terms of cheaper cost, cheaper ser­vices and uti­lize the ca­pac­ity of the spare in­ven­tory. They have been able to bring up scale and they have been able to mass cus­tomize. We are ac­tively seek­ing out part­ners such as in­sur­ance com­pa­nies, in­vest­ment com­pa­nies and of course the reg­u­lar banks. What we are try­ing to do is bring bank­ing to the mass con­sumers.

Manoj: Any ex­am­ples of or­ga­ni­za­tions that are ac­tu­ally ag­gre­gat­ing dif­fer­ent kinds of things suc­cess­fully?

Ravin­dra Sharma: JPMOR­GAN started its op­er­a­tions long back but dig­i­tal has changed the way it op­er­ates to­day com­pletely. They came up with the com­plete trans­for­ma­tion on sup­plier col­lab­o­ra­tion, cov­er­ing the com­plete gamut right from iden­ti­fi­ca­tion to risk strat­egy.

Ji­ten­dra Agrawal: In our or­ga­ni­za­tion, we pon­dered over time how to de-risk our­selves from a sin­gle chan­nel. We ob­served in BFSI and be­yond, where cus­tomers ex­ist. We iden­ti­fied among the NBFCs, MFI, Small blanks in BFSI space, rather try­ing to cre­ate a brick & mor­tar sys­tem of reach, there is an op­por­tu­nity to use scal­able dig­i­tal mech­a­nism of reach to their cus­tomers and deepen our re­la­tion­ship! We now have many part­ners and the fu­ture is to lever­age their ecosys­tem, build our dig­i­tal plat­forms through an­a­lyt­ics, ar­ti­fi­cial in­tel­li­gence and dig­i­tal re­la­tion­ship of­fer­ings to the cus­tomers as a win-win to all.

Manoj: When it comes to part­ner­ship, dif­fer­ent parts of the or­ga­ni­za­tion like HR, mar­ket­ing, ad­min, etc, will do some part­ner­ship ar­range­ment with var­i­ous par­ties. But the learn­ings from th­ese part­ner­ships re­main in si­los.

Parag Joglekar: Tech­nol­ogy can make best prac­tices hap­pen. To­day, most best prac­tices ex­isted in si­los. There was no mech­a­nism and typ­i­cally there were good prac­tices, but they were stuck in Ex­cel sheets or in the minds of some peo­ple. To­day, tech­nol­ogy work­flows have made it pos­si­ble to cre­ate one ar­chi­tec­ture of com­pli­ance. It is not left in si­los.

Manoj: What kind of trends do you see in Know Your Part­ner (KYP)?

Ravin­dra Sharma: In cer­tain in­dus­tries like pharma and air­lines, KYP is a must as it is a reg­u­la­tory en­vi­ron­ment. When you choose a part­ner, you do a lot of val­i­da­tion and cer­ti­fi­ca­tion. But, no part­ner­ship is for life. In a few months, it is ob­so­lete. It is manda­tory as a com­pli­ance cus­to­dian to make sure that all the part­ners and all their ca­pa­bil­i­ties and se­cu­rity points are cur­rent. When you se­lect a part­ner, how do you get con­tin­u­ous alerts and alarms and right in­for­ma­tion? The sec­ond as­pect of the com­pli­ance is in­voic­ing – which is linked to cost. There are a lot of in­voices for which we don’t have a pur­chase or­der. How do you ver­ify? Even on the in­voic­ing side, if you look at the ex­cep­tion man­age­ment, you get a lot of in­voices and typ­i­cally in any com­pany, 40-45% are found to have some ex­cep­tions. Lib­erty Mu­tual went down to 4%, which is dras­tic and no other or­ga­ni­za­tion has been able to do. That is an­other as­pect of com­pli­ance which means a lot of money. There is a lot of com­pli­ance in op­er­a­tions on part­ners’ side which can be strength­ened and many global com­pa­nies have al­ready done it.

Manoj: Do risk man­agers come into the pic­ture early on when you are ne­go­ti­at­ing a part­ner­ship? What are the kind of con­cerns they raise?

Prashant: When you do the due dili­gence, they are part a part of the rou­tine. They have to go across, they have to check it out, they have to meet the board. Then you come to know that the com­pany is sta­ble or not.

Shan­tanu: A lot of time, the reg­u­la­tor is go­ing to slow you down and the cur­rent risks in the sys­tem are not ad­dressed by

the reg­u­la­tory com­pli­ance and checks and con­trols. I think that is where the reg­u­la­tors and the busi­ness part­ners and all of us need to get to­gether and we re­frame what are the po­ten­tial risks in the sys­tem that are not be­ing ad­dressed right now. We are grow­ing and grow­ing at a fu­ri­ous pace but the re­lated risks are not be­ing looked into the way it should be.

Manoj: If you are do­ing a part­ner­ship in a startup fin­tech, you will in no way be able to get a proper re­port from them. Even if you go and visit them pe­ri­od­i­cally, you will see a dif­fer­ent pic­ture each time. How do you put com­pli­ance and gov­er­nance and due dili­gence for th­ese set ups?

To­hin Sing­hal: If you have a new fin­tech part­ner, when you have smaller or­ga­ni­za­tions, you have to hand hold with them and have a stricter or reg­u­lar in­ter­ac­tion with them to un­der­stand the com­pli­ance with them.

Manoj: How is GST go­ing to af­fect the op­er­a­tions, KYP, or deal­ings with them or how will you speed up your in­ter­nal process be­cause of GST? Do you pro­pose to bring in any changes in the con­tracts? What is your roadmap for GST?

Sameer Ka­math: One of the things I have heard is that wher­ever GST was im­ple­mented, they have kept fi­nan­cial ser­vices out of its purview be­cause of the com­plex­i­ties. Ser­vice tax will be cen­tral­ized be­cause it is one col­lec­tion author­ity. What has hap­pened is in GST the ju­ris­dic­tion of the col­lec­tion is the ju­ris­dic­tion of the client. In fi­nan­cial ser­vices, the op­er­a­tions span across In­dia and it means each branch be­comes touch point for ser­vice tax as­sess­ment. Each com­pany has mul­ti­ple reg­is­tra­tions and each branch has to be in­di­vid­u­ally as­sessed as a GST as­sesse, which means I will have to reg­is­ter in each of the states where I have branches. Each branch re­quires to have its own books of ac­counts. Each branch re­quires trans­fer price to PNL. Just think about the night­mare a com­pany which runs pan In­dia op­er­a­tions. It is op­er­a­tionally quite a night­mare and some­where in­dus­try representation is re­quired on that. The in­tent has to be dif­fer­ent - I think some learn­ing from best prac­tices will have to be con­sid­ered here. How do you align your­self in­ter­nally be­cause in the age of cen­tral­iza­tion lot of peo­ple have cen­tral­ized lot of their things? But th­ese reg­u­la­tions are quite coun­ter­in­tu­itive on that. I think some of th­ese chal­lenges have to be grap­pled with in terms of how to op­er­a­tional­ize some of th­ese things. I think those are big­ger chal­lenges from that per­spec­tive be­cause the cost of com­pli­ance is go­ing to go up tremen­dously if things have to hap­pen in the cur­rent avatar.

Ravin­dra Sharma: There are two as­pects of GST that CXOs are wor­ried about. One is the whole com­plex­ity of the GST tax­a­tion reg­u­la­tion, and the sec­ond is the highly dis­trib­uted na­ture when there are branches. We are wor­ried about the sec­ond part. In­ter­est­ingly, many peo­ple are wor­ried about the time win­dow. When you have to claim GST credit, there will be a lim­ited win­dow of 90 days for the time be­ing in which ev­ery­thing has to be matched, rec­on­ciled and ap­proved. Tra­di­tion­ally, in In­dia you get an in­voice with 47-line items. I was with a pharma com­pany. We found that we could ap­prove just 28% of in­voices within 30 days, 54% in 60 days 78% in 90 days. Imag­ine a sit­u­a­tion where all the in­voices from your sup­pli­ers are land­ing and the need is to clear all of them in 5 days. When I say it gets ap­proved in 5 days flat, it is not at a header ag­gre­gate level, but it is at a line item level. And how do we make sure that a lot of sup­pli­ers in In­dia are com­fort­able and are at ease and can do this busi­ness with you which can ben­e­fit sup­pli­ers also be­cause they get the in­voice ap­proved.

Deutsche Bank had shared ser­vices and the cost of shared ser­vices came down to al­most 35%. The CFO said a lot of in­voices are avail­able in 5 days. How do we cap­i­tal­ize on it? They started a work­ing on a cap­i­tal col­lab­o­ra­tion pro­gram with their sup­pli­ers gen­er­at­ing a lot of risk free in­come.

We spoke about GST and so on. The fact is to­day tons of in­voices come to the com­pany and 40% or more are iden­ti­fied with at least one ex­cep­tion - that is global bench­mark - and the en­tire ac­count pay is cre­ated pre­dom­i­nantly to man­age ex­cep­tions. In In­dia, the whole BPO in­dus­try was born with this process. The first pro­cesses to land in In­dia were the ac­count payable pro­cesses. Deutsche Bank brought down the ex­cep­tion per­cent­age to less than 5%. There are com­pa­nies like Dis­ney or Cater­pil­lar which are op­er­at­ing at 2% ex­cep­tions.

The third thing is the cy­cle time, which at present is typ­i­cally 30-35 days and this will get crushed to 4-5 days.

The last part is that a lot of com­pa­nies are ac­tu­ally cap­i­tal­iz­ing on the newer win­dow avail­able. If I have ap­proved an in­voice which is not yet due, how do I fa­cil­i­tate some of my sup­pli­ers.

Sup­pli­ers love this trans­par­ent sys­tem. Imag­ine I am a sup­plier and I send an in­voice to you. I don’t know what hap­pened. It is a frus­tra­tion. Af­ter 14 days, I get a call say­ing that the in­voice you sent which you thought is per­fect has an er­ror. So, start the work afresh. It is very frus­trat­ing. In the tech en­abled sys­tem, the in­voice is com­pletely cor­rect be­cause all er­rors are rec­ti­fied while they are cre­at­ing the in­voice. Ul­ti­mately, what you de­liver to the cus­tomer has to be as­sem­bled through the part­ner and run through part­ner. Day to day cus­tomer ex­pe­ri­ences are fully de­pen­dent on how your part­ner be­have.

Panelists in at­ten­tive mode

Panelists Venkat­tesh R. Head - Op­er­a­tions, Tech­nol­ogy & Hu­man Re­sources, DCB Bank Aman­deep Singh CFO, Agora Mi­cro­fi­nance Trivikram Ka­mat CFO, Ko­tak Se­cu­ri­ties Prasanna Lo­har Head - In­no­va­tions, DCB Bank Prashant Mo­hta CFO, ICICI...

Par­tic­i­pants lis­ten to a point be­ing made July 2017

An­other group of panelists

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