SBI had undertaken a massive computerization effort in the 1990s to automate all of its branches, implementing a highly customized version of Kindle Banking Systems' Bankmaster core banking system (now owned by Misys). However, because of the bank's historic use of local processing and the lack of reliable telecommunications in some areas, it deployed a distributed system with operations located at each branch.
Although the computerization improved the efficiency and accuracy of the branches, the local implementation restricted customers' use to their local branches and inhibited the introduction of new banking products and centralization of operations functions. The local implementation prevented the bank from easily gaining a single view of corporate accounts, and management lacked readily available information needed for decision making and strategic planning.
The advantages in products and efficiency of the private-sector banks became increasing evident in the late 1990s as SBI (and India's other public-sector banks) lost existing customers and could not attract the rapidly growing middle market in India. In fact, this technology-savvy market segment viewed the public-sector banks as technology laggards that could not meet their banking needs. As a result, the Indian government sought to have the public-sector banks modernize their core banking systems. In response to the competitive threats and entreaties from the government, SBI engaged KPMG Peat Marwick (KPMG) in 2000 to develop a technology strategy and a modernization road map for the bank.
In 2002, bank management approved the KPMG-recommended strategy for a new IT environment that included the implementation of a new centralized core banking system. This effort would encompass the largest 3,300 branches of the bank that were located in city and suburban areas.
The State Bank of India's objectives for its project to modernize core systems included:
• The delivery of new product capabilities to all customers, including those in rural areas
• The unification of processes across the bank to realize operational efficiencies and improve customer service
• Provision of a single customer view of all accounts
• The ability to merge the affiliate banks into SBI
• Support for all SBI existing products
• Reduced customer wait times in branches
• Reversal of the customer attrition trend
Challenges for the Bank
The bank faced several extraordinary challenges in implementing a centralized core processing system. These challenges included finding a new core system that could process approximately 75 million accounts daily — a number greater than any bank in the world was processing on a centralized basis. Moreover, the bank lacked experience in implementing centralized systems, and its large employee base took great pride in executing complex transactions on local in-branch systems. This practice led some people to doubt that the employees would effectively use the new system.
Another challenge was meeting SBI's unique product requirements that would require the bank to make extensive modifications to a new core banking system. The products include gold deposits (by weight), savings accounts with overdraft privileges, and an extraordinary number of passbook savings accounts.
Initial SBI Core Systems Modernization Project
The contract with TCS Group for the initial project was completed in May 2002; 3,300 branches were to be converted by mid-2007. The TCS group included Hewlett-Packard, Australia based Financial Network Services (FNS), and China Systems (for trade finance). TCS immediately began a six-month gap analysis effort to determine the required software changes to the BaNCS system. The changes included installing required interfaces with more than 50 other systems as well as making enhancements to support the bank's product requirements. These product requirements were separated by customer segment to allow the vendor and bank to begin conversions before all the needed modifications were implemented. They placed a priority on the needed changes that would allow branches with high-net-worth individuals and then corporate accounts to be converted as soon as possible. Before the first conversion in August 2003, TCS and HP created the data processing environment for SBI. The primary data center was established on the outskirts of Mumbai and a backup center was established approximately 1,000 miles to the east in Chennai. The centers were equipped with HP Superdome servers and XP storage systems in a failover configuration utilizing HP's UNIX operating platform.
Initial Conversion Project
The conversion effort began in August 2003, when SBI converted three pilot branches to the BaNCS System. The successful conversion and operation of the pilot branches was followed by the conversion of 350 retail branches with high-net-worth customers between August 2003 and September 2004. At this point, the bank intentionally halted the conversions to analyze and resolve reported problems. They analyzed, categorized, and prioritized these problems by type of resolution (e.g., software, procedural, training) and severity. TCS managed software revisions for the critical software changes while the branch personnel managed the needed training and procedural changes.
After the software and procedural changes were implemented, SBI converted an additional 800 branches between December 2004 and March 2005. Unlike in the previous conversions, this group of branches included predominantly commercially oriented offices. The conversion effort then refocused on retail branches until November 2005, when the bank paused again to resolve problems that came up during this second group of conversions. After the second round of changes, the system and processes were functioning smoothly, and management believed the branch conversion could be accelerated. An assembly line approach was then employed in April 2006 to speed the branch conversion process:
• Branch personnel were responsible for data scrubbing and cleaning of their customer information on the existing system.
• Branches were notified three months prior to their conversion date to begin "mock," or test, conversions using a specially created test version of the BaNCS system.
• Branches performed several test conversions to ensure the actual conversion went smoothly.
As the new core banking system was rolled out across the SBI branches nationwide, a special process was introduced in the nightly batch window to add the new branches. The process increased batch processing time approximately 20 minutes and typically included adding branches in groups of 50. This additional process, of course, was unnecessary upon completion of the rollout and has since been removed from the nightly batch window. TCS and local area branch managers oversaw the conversions, and the bank's circle (regional) heads formally reported the status to the chairman's office. By employing the assembly line approach for branch conversions, SBI was able to convert 1,200 branches in April and May 2006, completing the initial 3,300-branch conversion two months ahead of the original schedule. The milestones for the initial core systems implementation project are included in the SBI and affiliate banks core systems modernization time line in Exhibit 2.
Affiliate Banks' Conversion
As the rollout plans for State Bank of India were being finalized, the bank decided to extend the scope of the core banking implementation to include its (then) eight affiliate banks. TCS created a separate processing environment within the Mumbai data center used to support SBI.
The conversion effort for each of the affiliate banks spanned 18 to 24 months; the first six months were used for planning, training, and establishing the processing environment for the banks. The branch conversions overlapped among the banks, allowing all the affiliate banks to be converted in
30 months. The project was begun in July 2003 for the State Bank of Patiala and in 2004 for the other affiliate banks. The entire affiliate bank branches were converted to the BaNCS system by the end of 2005
State Bank of India Full Branch Conversion
The success of the initial 3,300-branch conversion for SBI demonstrated that:
• TCS had the technical capabilities to support the bank's IT initiative and scale of operations.
• Bank personnel had the skills to adopt new processes and support the conversions.
• The Indian customer base would react to new technology by adopting new electronic services and demanding new, more sophisticated banking products.
• An assembly line approach could be used effectively to support large-scale branch conversions.
Given the success of the initial project and SBI's desire to offer new products to all of its customers, a new IT plan was created that would encompass all branches. TCS and the bank would have to demonstrate the capability to process 100 million accounts in a single processing environment. TCS and HP then conducted another scalability test in September 2006 to determine if the system could process SBI's entire base of 100 million accounts (excluding the affiliate banks, which use a separate processing environment) with sustained peak online throughput of 1,500 transactions per second. They conducted the test at HP Labs in Cupertino, California, using two 32 CPU HP 9000 Superdome application servers and two 32-processor Itanium Core HP Integrity servers for the database. The test achieved a sustained peak real-time transaction rate of more than 1,575 transactions per second, meeting the projected processing demands of SBI. Additionally, batch tests were run for both deposits and loan account processing. The month-end batch process for loans required 1 hour and 5 minutes, and deposit processing was completed in 2 hours and 27 minutes.
Based on the successful scalability test, SBI decided to convert the approximately 6,700 remaining
SBI branches to the BaNCS system. The conversion of the remaining branches began in June 2006, with the stated goal of completing the conversion by year-end 2008. Utilizing the assembly line conversion approach established in the initial phase, the bank converted 1,400 of these branches by March 2007.
Because the conversion methodology and BaNCS system were thoroughly proven and stable, the assembly line conversion approach allowed the bank to complete the conversion ahead of schedule. Between April 2007 and March 2008 (the bank's fiscal year end), SBI converted 4,600 branches to the new system. The remaining branches were converted between April and July 2008.
Critical Success Factors
Large-scale core systems implementations are typically the most costly and risky IT projects undertaken by banks. Failures of core systems projects are not uncommon at large banks and result in both financial impact and lost business opportunities. Further, failed projects lead other banks to delay needed core systems replacements because they measure the risk of failure against the potential benefits of a new system.
TowerGroup believes that several critical factors contributed to the success of the SBI core implementation effort:
• Senior management commitment. The project was driven by the chairman of SBI, who met every month with the information technology (IT) and the business sector heads. The chairman monitored the overall status and ensured that sufficient resources were allocated to the project. TCS senior managers were thoroughly committed to the project as well and periodically met with the SBI chairman to review the project status.
• Staffing and empowerment of project team. The core banking team consisted of the bank's managing director of IT acting as team head and 75 business and IT people selected by the bank. TCS also staffed the project with approximately 300 IT professionals trained on the BaNCS system. Importantly, the SBI business people were viewed not just as contributors to a key project but as future bank leaders. This team reported to the SBI chairman and was empowered with all decision-making authority.
• Ownership by business heads. The regional business line heads were responsible for the success of conversion of their respective branches and reported the status to the chairman.
Thus, the business heads' objectives were aligned with those of the project team.
• Focus on training. SBI used its network of 58 training centers across India to train employees on the new system. TCS personnel first educated approximately 100 SBI professional trainers, who then trained 100,000 SBI employees at the centers; the remaining employees trained at their respective job sites.
Benefits of New Core Systems Implementation
The new core system has resulted in benefits throughout the bank for both the customers and the employees of SBI. For example, the new core banking system has allowed the bank to redesign processes. It established 400 regional processing centers for all metro and urban branches that have assumed functions previously performed in the individual branches. The bank recently reported that business per employee increased by 250% over the last five years.
The bank has achieved its goal of offering its full range of products and services to its rural branches. It delivers economic growth to the rural areas and offers financial inclusion for all of
India's citizens. Implementation of the TCS BaNCS system has provided the bank with the ability to consolidate the affiliate banks into SBI. In fact, the bank recently completed the consolidation of State Bank of Saurashtra into SBI. The bank has reversed the trend of customer attrition and is now gaining new market share. Completion of the core conversion project has also allowed the bank to undertake several new initiatives to further improve service and support future growth. These initiatives include the deployment of more than 3,000 rural sales staff, redesign of over 2,200 branches in the last fiscal year, opening of more than 1,000 new branches, establishment of a call center, and an active plan to migrate customers to electronic delivery channels.
