When HDFC BankÆs acquisition of Times Bank, another of the new breed, was approved by the Reserve Bank of India in February this year, management was faced with an important decision - how to merge the IT infrastructure of the two banks into a cohesive system that would maintain and enhance HDFC BankÆs position as a technology leader?
ItÆs an age of consolidation for many industries around the world, particularly for banks, so the challenge of merging disparate technology isnÆt uncommon. A courtship analogy is particularly apt here. When banks start talking about a merger and negotiating swap ratios itÆs like the first couple of dates where you size up the value of a potential partner. Getting regulatory approval for the bank merger is like the first meetings with each otherÆs parents. This might not sound like much fun, but things get a lot harder when the two partners move in together and the business of day-to-day coexistence needs to be figured out. Like most good relationships the best solution is a bit of give and take.
HDFC Bank found this to be the case when they evaluated the technology in place at each of the banks. The back office systems from HDFC were chosen over that of Times Bank and in some cases upgraded, while in other areas, particularly trading and risk management, Times Bank was found to have the superior technology.
Many banks bring in an experienced third-party consultant to help with integration, but C.N. Ram, senior vice president at HDFC Bank, says that they decided to do everything in-house and that the process should be completed by the end of September.
ôA third party consultant would probably spend as much time trying to understand both systems - time that would be lost. Without the integration the product offering from almost a third of our branches really suffers,ö says Ram. ôIf youádonÆt offer uniform products across your entire branch network, obviously your customer service suffers andáácustomer acquisition suffers so there was a lot of incentive for us to finish this in as quick a time frame as possible.ö
ôThe advantage is that we have a set of people that know the products from both sides. In the user community, theyÆre the best people to talk to about merging the two entities,ö he says.
HDFC had chosen two different systems for its two different businesses û wholesale banking and retail banking. Both of them came from i-flex, a Citicorp venture capital company. Times Bank had chosen to run all their operations on a platform from Midas Kapiti.
ôWe had to look at whether it made any sense to keep using Kapiti or the combination,ö says Ram. ôThat was quite easily done because the features we had on the retail side were far superior to what Kapiti offered. So we knew Times BankÆs retail accounts had to come out of Kapiti.ö
On the wholesale side it was more of a toss up because the i-flex product, MicroBanker, is quite old. ôBut we talked to i-flex and we realized it would be better to migrate to their new platform called FlexCube,ö says Ram.
Looking at Times Bank it was realized that they had the superior technology in trading and risk management and that this should be implemented in the newly merged institution. Last November, Times Bank had licenced the Panorama and Devon Systems from US-based software vendor SunGard, and Sudhir Joshi, treasurer at HDFC Bank, says that these products were best suited to deal with IndiaÆs changing markets.
ôWe expect the derivatives market in India to become active in the next one or two years,ö he says. ôThe systems we had earlier did not have the functionality to handle derivatives. What we found is that Panorama and Devon are very good systems for that.ö
Any new relationship has its occasional hiccup, but Ram says that bringing HDFC and Times technologically together has been a pretty smooth ride so far. ôWeÆve spent a substantial amount of time testing the extract programs and weÆve been trying to work out where potential problems might lie,ö he says. ôWeÆve had a few minor hiccups but none of our conversions had to be called off.ö
The exhaustive process of merging the ATM infrastructure has been completed. Walkthroughs have been done on the other systems, and all that remains is further extensive testing. So what did all this cost? ôWeÆve spent less than $200,000,ö says Ram.
Where other, admittedly larger, banks in Asia have budgeted millions of dollars and 12-month plus time frames for post-merger IT integration, this seems surprisingly cheap. Ram doesnÆt take into account the time spent on the integration by existing staff in this figure, but even with their effort factored in he says the total would still be less than $300,000. ôThatÆs what happens when you do something in-house,ö he laughs.