1. Zinnov Management Consulting
IT Adoption in BFSI Sector in India
2012
This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or
reproduced for distribution outside the client organization without prior written approval from Zinnov.

2. India is a fast growing IT market; BFSI vertical constitutes a significant share of the
overall spending
USD billion FY12 FY11 Distribution of IT Spending in India, FY12
$13.7
Energy
Hardware 17.1%
$11.7 15.7%
Government
15.4%
IT $12.6 BFSI
14.4% 11.1%
Services $11.0 Manufacturing
28.8%
Telecom
7.2%
Consumers Education
Software $4.2 11.9% 1.5%
Products 19.5%
$3.5 Healthcare
Others1 Retail 1.0%
Total domestic IT market FY12 7.0% 0.4%
~ USD 30.4 billion
Overall, BFSI vertical is contributing significantly to the growth of the Indian economy;
its share in Indian GDP is estimated at ~8%
Source: Company Annual Reports and Press Releases; Dataquest; Primary Interviews with Stakeholders in the Indian IT Ecosystem; MOSPI; Zinnov Analysis
Note: 2

3. The rapid diversification of the sector including Banks, NBFCs and Insurance presents
huge IT opportunity Scheduled Banks in India Over 97,000
(235) Unscheduled
Banks
Commercial Co-operative
Banks (166) Banks (69)
Public Sector Foreign Banks Private Sector Regional Rural Urban Co- State Co-
Banks (26) in India (33) Bank (21) Banks (82) operatives (53) operatives (16)
Nationalized SBI and its Old private New Private
Banks (20) Associates (6) Sector Banks (14) Sector Banks (7)
NBFCs (12,409) Insurance Sector
(49)
Registered and Regulated by Exemption from RBI Not registered but regulated
RBI regulations and registration by RBI*
Mutual Benefit Finance Life Insurance (24)
Loan Company Insurance Companies
Cos. (notified nidhis)
Stock Exchange, Stock Mutual Benefit Cos.
Investment Company
brokers, etc. (potential nidhis) Non Life Insurance
(24)
Equipment Leasing Housing Finance Misc. Non-Banking Cos.
Company Companies (chit funds)
Hire Purchase Finance Micro Finance
Company Companies Reinsurance (1)
Residuary Non-Banking
Company
Source: RBI, IRDA
Note: *Not registered with RBI, but the RBI issues direction relating to deposit acceptance policy 3

4. After a slow growth phase during the economic downturn, the banking industry has
started growing rapidly again
Banking – Key Trends
Rapid geographic
Innovative products and
expansion plans (SBI,
platforms (virtual debit
Indian Overseas Bank,
cards, RuPay, etc.)
Performance Indicators for Indian etc.)
Scheduled Commercial Banks, USD billion
1,141
Focus on Financial New banking licenses
Inclusion (RBI, SBI, Punjab 948 from RBI (Maharashtra
& Sind Bank) 830 864 State Cooperative Bank)
794
685
587 601
Foreign banks opening
Single view of customer;
branches in India (Woori
single point of access for
Bank, FirstRand Bank,
all Information
Westpac)
2007-08 2008-09 2009-10 2010-11
Branchless banking via Aggregate Deposits Bank Credit Regulation and
mobile, internet kiosks, compliance (IFRS, Basel
etc. (SBI, Union Bank) III, etc.)
Expansion into
Consolidation/
investment banking and
recapitalization of RRBs*
other advisory services
across India
(Axis Bank)
Source: RBI; Company Websites; Zinnov Analysis
Note: *Regional Rural Banks 4

5. Financial Services and Insurance sectors are following suite and have shown promise
• Growth of Micro-credit
Financial • Need for real-time processing in capital markets
Services • Focus on wealth management
• Introduction of new financial products (CDS for
Total Assets of Non-Bank Finance Companies
corporate bonds, securitized debt, fund products)
in India (end-March), USD billion • Government focus on increasing investor base for
25 26 the capital market
24
19
16
Gross Premium Underwritten by Insurers,
USD billion 64
56
2007 2008 2009 2010 2011 52
48
36
• Statutory automation as per IRDA
• Growth of Micro-insurance
• Collaboration with banks: the Bancassurance model 7 7 9
6 7
• Targeted customer approach
• Increasing competition (no. of players increasing)
• Delivery channels like mobile, internet, distance 2007 2008 2009 2010 2011
marketing in addition to agent model Insurance
• Portability of health insurance policies Life Non-life
• E- insurance accounts
Source: RBI, IRDA
Note: 5

6. The growing business needs of BFSI players have led to a rapid adoption of IT in the
BFSI vertical…
Key Drivers for IT Adoption in BFSI Vertical
Meet Regulatory Regulatory authorities like RBI, IRDA and SEBI release regular
Requirements/ mandates necessitating IT adoption for better services and
security
Security
Customers are investing in IT
Improve Internal applications which help them better
Efficiencies align their business processes and
improve internal efficiencies
Key IT investments are targeted at Support Growth
supporting the business growth plans of Strategies
BFSI customers Customers are looking
for IT solutions which
can help them
Develop Customer differentiate
Experience themselves from their
competitors
IT is helping BFSI players in extending New Channels for
their reach to the unbanked population of Furthering Reach
India
Source: Zinnov Analysis
Note: 6

7. …as a result, the IT market has been growing at 13% YoY, with key adoption across all
domains
IT Spending in BFSI, USD billion IT Spend Distribution
IT Budgets as a Percent of Revenues
Hardware
~53% for BFSI: ~1.5-2.0%
2.7
Software
~15% Services Percentage Outsourcing in BFSI:
2.4
~32% ~60%
FY11 FY12
Key Recent IT Deals in BFSI Vertical
Customer IT Service Provider Description
IDBI Bank deployed Oracle Hyperion Planning to create budgets and rolling
IDBI Bank Oracle
forecasts that are linked to its balance sheet and profit and loss models
Bank of Baroda HP Assessment and refresh of the bank's applications and IT infrastructure
ICICI Securities Microsoft Enabling an online trading platform for ICICI
Transfer of bank’s non-core banking applications to Hitachi USP VM which
Dhanlakshmi Bank Hitachi
allowed it to adopt virtualization and reuse old storage boxes
NABARD Wipro End-to-end solution to computerize four co-operative banks
A 10-year deal to manage entire IT infrastructure in the areas of finance,
Mannapuram Finance IBM
HRM, BI, collaboration and document management
Deployment of Cisco’s wide area network optimization solution across all of
Union Bank Cisco; Wipro
1,600+ branches of Union Bank
Source: Nielsen Domestic IT-BPO study 2010; Primary Interviews with Stakeholders in the Indian IT Ecosystem; News Updates; Company Websites; Zinnov Analysis
Note: 7

8. Compliance requirements and guidelines by governing bodies have played a key role
in driving IT adoption in the vertical
Recent Regulations & Guidelines Influencing IT Adoption
• In Oct-11, RBI instructed all NBFCs to gradually phase out
use of checks and shift to electronic payment system
Encourage
• In Apr-11, RBI allowed co-operative banks and RRBs to
transfer funds electronically through RTGS and NEFT
Digital • RBI mandated that all the banks should automate the
• RuPay, India’s domestic card payment network was Transactions process of filing regulatory reports (ADF Regulations)
introduced by NPCI in early 2012 • In 2011, RBI issued draft guidelines on implementation
Compliance of Basel III capital regulations
Regulations • In 2011, RBI issued guidelines on CDS*, directing
market participants to report such trades within 30
• RBI has mandated that corporates seeking banking
minutes to the Clearing Corporation's online
licenses will have to commit to having 25% of their bank Financial repository
branches in rural unbanked areas Inclusion
• In 2011, RBI mandated adoption of CBS by all RRBs across Initiatives
India
• SEBI’s nod on SME exchange • An RBI committee earlier issued recommendations to
banks to enhance cyber security and has also
Security
• In order to encourage mobile transactions, RBI removed threatened actions against those who would not
the limit cap for transactions of INR 50,000 in Dec-11 comply
• In Oct-11, IRDA allowed health insurance portability for Encouraging
policy holders Customer
• IRDA has also asked LIC to complete all claims-related Friendliness
investigations within the stipulated time-frame of six
months
• SEBI allowed mobile trading for equities in 2010
In April 2011, RBI released Guidelines on Information security, Electronic Banking, Technology Risk Management and Cyber Frauds
detailing guidelines to its affiliates under nine subject areas including: IT Governance, Information Security, IT Operations, IT Services
Outsourcing, IS Audit, Cyber Frauds, Business Continuity Planning, Customer Education and Legal Issues
Source: RBI; News Updates
Note: *Credit Default Swap 8

9. There has been a marked growth in maturity of IT adoption by the BFSI customers
over the past few years
IT Adoption Evolution in BFSI
9.4
4.3
Year-wise Number 2.7
1.6 1.0
of Deals Tracked
(indexed to 2007)
2008 2009 2010 2011 2012*
2008 & Earlier 2009-10 Present
0%
7% 4%
32% 31% 19%
Key Solutions in 47% 31% 11% 31%
4%
Demand 27% 35%
11%
(Level-wise) 10%
Modern IT Modern IT Modern IT
Complete Outsourcing/ Managed Services Core Modern IT
Non-core Security/ System Solution/ Networking
• Mobility solns./ online payment • Replacements of legacy systems
Large Banks/ FSI • Gradual IT adoption around core
• Use cases of solns. like BI/ cloud (e.g. CBS, collab.)
Firms applications like CBS
starting to emerge • Focus solns. (e.g. Treasury soln.)
• Continued investments in CBS
Regional Banks/ • RRBs (sponsored by larger banks)
• Minimal IT adoption observed • Increasing traction for public
Smaller FSI Firms starting to adopt CBS
cloud
Source: Press Releases, News Updates, Zinnov Analysis
Note: *2012 deals tracked till April; based on pro-rata value 9

10. A host of key focus areas is driving the adoption of IT in the vertical
Core Banking Solution
1
9 2
Services Driven Market Business Enabling Solutions
8 3
IT
Social Networking/ Online Solutions Adoption Peripheral Applications/ Solutions
Trends in
BFSI
7 Vertical 4
Mobile Banking/ Mobility Solutions Security and Compliance
6 5
Business Intelligence Cloud and Virtualization
Source: Zinnov Analysis
Note: 10

11. While CBS continues to be a key area of focus, players are investing in solutions
which can help them in solving targeted business issues
1 2
Core Banking Solutions Business Enabling Solutions
Regulatory Guidelines and Growth Driving CBS Adoption Indian BFSI players are looking for solutions which can help
among RRBs and Co-operative Banks them in better aligning their business processes
• The Regional Rural Banks and co-operative
banks (driven by larger entities like Canara
• Axis Bank implemented the Microsoft
Bank and NABARD) have emerged as an
EPM* soln. to help manage its project
attractive segment for CBS adoption in past
workflow, improve project reporting, and
few quarters – Wipro to implement Finacle
resource forecasting
for Canara Banks RRBs (900 branches)
• 11 Co-operative Banks in Gujarat partner with TCS for core • FedBank and NABARD adopted Loan
banking solutions Management Solns. to manage loan
• Nawanagar Co-operative Bank adopted CBs services (FedBank: IBM server and
on cloud (IBM Implements OMNIenterprise) Nucleus Software, NABARD: Polaris)
• ICICI Prudential and IndusInd Bank have
adopted BPM and Workload Automation
Larger Banks Adopting CBS 2.0 respectively to automate their processes
- Newgen
• Kotak Mahindra has replaced its existing
CBS with a newer version to become future • Cosmos Co-operative Bank has adopted a
ready – Infosys Finacle solution help it in reducing NPAs and
keep a check on them – IndiSoft worked
• IndusInd bank recently implemented with Cosmos to conceptualize the
Infosys Finacle CBS product as Infosys Finacle was not
efficient for NPA
Source: Press Releases, News Updates, Zinnov Analysis
Note: *Enterprise Project Management 11

12. Non-core applications and security/ compliance solutions are expected to continue
witnessing demand in the sector
3 4
Peripheral Applications/ Solutions Security and Compliance
F&A Solutions Compliance
• IDBI Bank deployed Oracle Hyperion RBI guidelines such as enabling Automated Data Flow in the
Planning to create budgets and rolling banks are driving key IT investments to be made/ planned
forecasts that are linked to its balance sheet
and profit and loss models • A Japanese bank's Indian arm deployed
WKFS FRSGlobal ADF soln. to meet the
ADF regulations – Wolters Kluwer
• HDFC Bank deployed a treasury solution
to help manage the transaction • While Yes Bank is planning to pilot ADF
processing systems – TCS Bancs soln., 4 Indian banks have already
adopted WKFS ADF Soln.
Collaboration Security
• Aditya Birla Services replaced its old Lotus
Domino Platform for collaboration with • Bajaj capital adopted solutions from
Microsoft® Exchange Server 2010 and Juniper to improve network efficiency as
Microsoft Office SharePoint® Server 2007 well as increase security standards
• Axis Bank has deployed SatNav's a-
CRM • ICICI Securities deployed a CRM solution for mantra FM Product to map all its offices
the management of Sales and Lead in great detail to capture property
Management requirements across its information, the layouts of each location,
various business divisions - CDC etc.
Source: Press Releases, News Updates, Zinnov Analysis
Note: 12

13. New technologies such as cloud/ virtualization and Business Intelligence (as a result
of ADF) are picking up
5 6
Cloud and Virtualization Business Intelligence
Virtualization BI is emerging as an attractive proposition for BFSI players
to develop targeted customer insights
• Players like Kotak Mahindra life Insurance,
Reliance General Insurance, IndiaFirst Life
Insurance have adopted VMware based
virtualization solutions to help improve
efficiencies of their data centers • IndusInd Bank has selected iCreate’s
Biz$core Business Intelligence (BI)
solution as a key component of its
• Dhanlakshmi Bank has opted to move all of enterprise Business Intelligence strategy
its non-core banking applications to Hitachi
• Similar adoption by HDFC bank,
USP VM which allowed it to adopt
Dhanalaksmi Bank etc.
virtualization and reuse old storage boxes
Cloud Computing
• Nawanagar Cooperative Bank has engaged
with IBM to deploy CBS on a hosted cloud • Yes Bank has built an in-house BI
services model solution for better understanding of
• ShamRao Vithal Bank partnered with customers and their behavioral
NetApp to offer cloud based solutions to patterns
other co-operative banks in its region
• Some larger banks like Yes Bank has shown
their inclination towards adopting private
cloud for their organizations
Source: Press Releases, News Updates, Zinnov Analysis
Note: 13

14. Need for mobile banking and social networking have emerged as essential for the
next generation services in the vertical
7 8
Mobile Banking/ Mobility Solutions Social Networking/ Online Solutions
Mobile Banking Social Networking
• Union Bank of India and SBI have
BFSI players are looking at connecting with their customers
introduced mobile payment services in
through popular social media portals such as Facebook
partnership with players like Nokia and
Reliance Comm. • ICICI Bank launched a Facebook
• HDFC Bank partnered with Vodafone to get application enabling its customers to
access to telco’s select retailers to act as directly perform banking transactions
HDFC's sub-agents through which
customers can deposit and withdraw cash • Many banks including HDFC Bank and
through their mobile phone without having Axis Bank have created pages on
to go to bank branches Facebook to understand their fans as
well as promote their banking products
Mobility Solutions
Online Solutions
• Reliance General Insurance adopted a
mobile insurance POS platform which • Reliance Securities partnered with Atom
equips the RGICL affiliated insurance agents Technologies to deploy an enhanced
to sell policies directly at the customer's payment system to enable traders to
doorstep – GoDB Tech make online payment via debit card to
their brokerage accounts
• United Bank of India pull-based SMS
• ICICI Securities partnered with Microsoft
enquiry services using Sybase 365 to
to launch an online trading portal on
automate customer enquiry processes
Microsoft’s Silverlight 4.0 platform
Source: Press Releases, News Updates, Zinnov Analysis
Note: 14

15. 9
Services Driven Market
BFSI vertical continues to offer significant
opportunities for IT Services providers in India
IT Services Earning Opportunities from BFSI Customers
Product License to Services Split Rational/ Other Insights
The longer the client is engaged, vendor makes money on multi-site roll out, upgrades, feature
CBS 1:2 to 2.5
customization etc.
CRM 1:1 One time implementation 1:1. With CRM there is very limited cross or up-sell opportunities
If the client enters into a services agreement with the partner the upsell could be 100% for services
Collaboration 1:0.25
revenue
Virtualization 1:1 Complete stack opportunity could go up to 1:12 (including hardware, software, services, network, etc.)
MW/ Platform 1:0.5 Professional services cost varies with choice of tier 1/ tier 2 SI. Also heavy discounts on licenses in India
System Mgmt. 1:0.6 Current adoption in mature industries. Extremely critical jobs. Lack of internal expertise
Heavy need of customization/ backend integration. OPEX models getting popular – might reduce the
Mobility Apps 1:1 to 2
one time license cost
Complete IT Infrastructure Management Upgradation
• Mannapuram Finance engaged IBM for 10 years to build and • Players are engaging their existing IT partners for new projects
manage the entire IT infrastructure including all applications For instance, Bank of Baroda engaged its existing IT partner, HP,
• RBI signed a USD 55 mn, 10 year deal for CBS with Polaris for the assessment and refresh of the bank's applications and IT
which included SI and maintenance services infrastructure
Recent
Deals
ATM Managed Services Software Testing
• Axis Bank signed an ATM managed services deal with Diebold • SBI General Insurance contracted Maveric Systems to provide
under which the IT vendor will support the bank with services Software Testing and Validation services
such as ATM incident monitoring, vendor management, cash • RBI engaged with ThinkSoft for software testing of its financial
forecasting and replenishment services, caretaker services, etc. services applications
Source: Interview with Key Ecosystem Stakeholders; Press Releases, News Updates, Zinnov Analysis
Note: 15

16. 9
Services Driven Market
Differentiated pricing structures provide impressive
margins for IT services players
Enterprise IT Spend
Business as Usual New Technology Adoption
(70%) (30%)
Hardware Software Services Hardware Software Services
Product + AMC (~70%) ~30% Product + System Integration/Consulting
Margin Range = Product Margin SI/Consulting
5-10% Range = 5-10% Margin 25-40%
IS Outsourcing Support and Customer Application IT Consulting Application System
Training Development Management Integration
Shared Resources Deployed
Margin Range = 15-20%
Source: Company Annual Reports; Press Releases & Shareholder Presentations; Zinnov Interactions with Senior Stakeholders Across Vendors; Zinnov Analysis
Note: 16

17. However, a variety of challenges are currently restraining the adoption of IT
Key Industry Challenges for IT Adoption
Lack of standardization of processes and
change management in public sector
banks
Regulatory compliance around data
sharing and privacy
Limited internal IT talent and constrained
budgets for smaller BFSI players
Increasing security threats with the
consumerization of IT
Fragmented industry amongst a number
of service providers
Lack of success stories for emerging
technologies like cloud computing, Big
Data etc.
Source: Zinnov Analysis
Note: 17

18. The supply side ecosystem is gradually evolving to meet the requirements from the
demand side
Supply Side Ecosystem in India
Percentage Large Annual domestic revenues >
contribution to ~60 per companies INR 10 billion
total domestic IT- cent Large Mid-size Annual domestic revenues
BPO revenues 20 players companies INR 1 billion to INR 10 billion
Smaller Annual revenues < INR 1
Mid-sized companies billion
~25 per
cent 55-60 players
~5-6 per cent Large and Mid-sized BPOs
~200
Mid and Small size Software Products
~1,100 players
~2 per cent MNCs ~150
Indian Product Companies ~400
Startups ~500-550
Smaller Firms Providing IT Services and BPO
~11,000 players
~5-8 per cent Web-development firms and freelancers ~5,000
Value added resellers ~4,000
Individual app-developers and freelancers ~1,600
Small & Micro BPO service providers ~500
Source: Zinnov Database of IT-BPO Companies in India; Primary Interviews with Stakeholders in the Indian IT Ecosystem; Zinnov Analysis
Note: 18

19. Foreign companies continue to dominate the domestic IT market
• HP
Indian
Indian • Dell
Foreign 16%
37% • IBM
Foreign 84%
63% • HCL Infosystems
• Acer
• Cisco
Domestic
Market
Share by
Revenues
• IBM • Microsoft
• Wipro Infotech Foreign Indian • SAP
32% 16%
• TCS • Oracle
• HCL Technologies Indian Foreign • Vmware
• 3i Infotech 68% 84% • Tally
• CMS Infosystems • Ramco
A Number of Key Players are Actively Focusing on the BFSI Vertical:
Source: Zinnov Analysis
Note: 19

20. Peer group companies focused on BFSI vertical are undertaking a host of initiatives
to penetrate the Indian BFSI market
Channel Partner
Strategies
Organizational Focus on developing efficient IT Alliances by Peer
Alignment channel partner network Companies
Aligning organizational Forging alliances to launch
structure as per industry’s relevant solutions for BFSI
needs customers
Key Initiatives by Target Customer
Expanding Presence
Segments
the Suppliers
Expand organizational Renewed focus on SMB/
presence in India Tier-II level customers
Keeping Pace with Next Generation
Compliances Products
Launch products to cater to new Mobility solutions; cloud
regulatory compliances computing; BI; data analytics
Source: Press Releases, News Updates, Interview with Key Ecosystem Stakeholders, Zinnov Analysis
Note: 20

21. Going forward, the IT market in BFSI vertical is continue to grow
IT Spending in BFSI, USD billion
3.5
3.1
2.7
FY12 FY13E FY14E
Cloud Computing and Virtualization Social Computing
Banking 2.0
IT-enabled Business Transformation Enhanced Security & Compliance
Solutions & Services Adherence
New Payment and Settlement Solutions
Simplified Banking Service Accessibility
and Systems
Source: Primary Interviews with the CIOs; Zinnov Analysis
Note: 21

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