Sourabh Sharma, Associate Consultant, TCS Financial Solutions

The term Urban Co-operative Banks (UCBs) is coined informally, but refers to institutions lending (allowed in 1996) money only for non-agricultural purposes. These are primarily located in urban & semi-urban areas, traditionally hovering around small communities, local workplace groups and essentially lend to small borrowers and businesses. Today, their scope of operations has widened considerably, owing to digitalization.

As of Nov 2021, nearly 1600+ UCBs are registered under Reserve Bank of India, 25% of UCBs have more than five branches and are responsible for 60% of the total banking business in the UCB sector. Consider-ing the physical boundaries of our country, there is a level playing field for each bank.

Current Challenges

For generations, cooperative banks have been using legacy systems, segmented databases and are served by local, dominant players. In due course, banking operations have become real-time & mission-critical. One of the major challenges these UCBs face are smaller technology budgets, in comparison to their peer public/private sector banks. Other issues which UCBs need to deal with are legacy applications, network latency, connectivity issues across branches, difficulty in latest hardware procurement, higher storage requirement, change management issues etc. Further, the Reserve Bank of India has laid down stringent security guidelines on vulnerability and compliance under Comprehensive Cyber Security Framework for UCBs (circular number DoS.CO/CSITE/BC.4083/31.01.052/2019-20). This further lead to a heavy reliance on local service-providers for their support & maintenance, who in turn lacked the scale and depth for adopting new age digital solutions.

The banks look up to the domain-centric technical players providing end-to-end to services to their cus-tomers in a niche market. The need of the hour is a bank-in-a-box kind of a solution, which includes core banking, real-time payments, trade finance, treasury, digital (internet and mobile banking), compliance reporting, etc., hosted over a cloud with best of the breed security practices and compliance with local regulator guidelines. UCB’s, by adopting flexible a deployment model – Software-as-a-service (SaaS) provided by technical players charging small subscription fees, can focus on their core business (offering banking services to their niche customers) rather than spending time on managing technology space.

Vision and Action

The demographic and geographic coverage of urban cooperative banks are unbeatable, creates niche banking relationships with their customers. The vision for UCBs is to develop a new technology of lending that will cater to the needs of micro, small and medium-scale enterprises; undertaking the economic growth of the community, wide spread branch network and acquiring new set of customers.

New age users are expecting the availability of information at the click of a button. Changing the buying behavior of the people led by a digital push would lead them to give away legacy systems and adopt new technologies. Taking a belly shot, UCBs landscape is getting redesigned in the new normal – change in customer behavior, user experience, competition and regulatory requirements.

Instead of spending a huge amount on technology transformations, UCBs are preferring to host their eco-system applications on cloud, offering flexible hardware, better governance and tight security controls, benefiting from the opex model of pricing without making significant upfront investments. Further, state-of-the-art software applications are available on subscription which could be based upon multiple param-eters like number of branches, transactions per day/month or account openings. Managed services provided as part of SaaS packages provided by technical players will take a huge burden out of the UCBs which includes hiring a large number of IT resources to maintain/manage applications, security and infrastruc-ture.

Current Motion in the Market

Hosting of mainframe applications on cloud is not a new thing. Way back in 2012, some UCB’s had pio-neered into the space and moved core banking solutions on shared private cloud infrastructure services. In the last couple of years, the industry has seen a strong demand uptick where UCBs are significantly investing in their digital transformation journeys. SaaS, the new buzz word, is gaining momentum where UCBs are looking forward to adopting banking-as-a-service platforms from domain-expert technology partners and instilling pureplay focus on their banking operations. This will help them reduce cost, drive operational efficiencies, and deliver world-class customer experiences.

Technology: The Only Way Forward

SaaS has disrupted internet-enabled banking industry in the last few years and outperformed the popular strategy of on-premise deployment of legacy applications. Subscription-based service offerings add im-mense value over the internet. Propelling its growth further, the center stage is taken by demarcation of technology, making it easier to setup what was unheard a few years ago. Moreover, UCBs having a cus-tomer base between a few thousand to one lakh cannot afford to have large IT teams to manage these issues. For them, transformation is possible only through a hosted model. That is where UCBs have been feeling the heat and looking out for a technical partner providing a bank-in-a-box platform, truly compliant with regulatory guidelines and able to serve their customers better.

The success of UCBs lies in the adoption of SaaS offerings – with an ever-changing, evolving nature, offer-ing banking with a differential approach.

Disclaimer: Views or opinions represented in this blog are based on the author’s own research and do not represent TCS BaNCS.

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