By Jayashree Jakhade

The e-bug seems to have bitten the FIs too. Domestic FIs are keen to change with the times and are trying to leverage on the fact that India is one of the major players in information technology (IT). The FIs are increasingly looking at the IT sector not just for lending opportunities, but for giving shape to their e-biz initiatives too. As global financial markets become more and more integrated, FIs are keen on foraying headlong into e-commerce.

That is why all the FIs including ICICI, IDBI, UTI and IFCI have put in place plans of diversifying into e-business. With India throwing its gates open to foreign investment, quite a few foreign investors are evincing keen interest to form joint-ventures with Indian partners, particularly the FIs.

Infotech initiatives
All these plans have something to do with the growing realisation among the domestic FIs that competition is fast growing and their spreads in traditional business operations are becoming thinner. That is why the FIs are desperate to break away from the stifling past and move into emerging growth-oriented sectors.

Consider ICICI for instance. ICICI has floated a separate company christened ICICI Infotech Services, which is engaged in software development and consultancy for banking and financial services, IT-related services such as web enablement and e-commerce and IT-enabled services.

Thanks to government encouragement, many state governments are latching on to the e-bandwagon. Expectedly, as many as three state governments have approached ICICI Infotech Services for setting up e-governance systems.

Such e-initiatives are taking the FIs overseas and helping them develop a global outlook to emerging business opportunities in the virtual world. One such e-initiative worth mentioning here is: ICICI Infotech Services is forging an IT and e-commerce joint-venture with Emirates Financial Services, an arm of the Emirates Bank Group. Christened as Tricolour Infotech International Inc, this joint-venture will be incorporated in Mauritius and will have its first operating office in the Dubai Internet City.

What is the idea behind such a joint-venture? To expand the customer base by offering the growing number of NRIs a range of retail finance and insurance products. The joint-venture proposes to develop these products on international standards.

ICICI Infotech Services is a wholly-owned subsidiary of ICICI and the Emirates Bank Group. These two partners will together hold at least 80 per cent of the paid up capital of the joint-venture with other strategic investors holding the balance.

The company is slated to have an authorised capital of US $five million divided into five million shares of US $one each. The Emirates Bank Group is a financial services conglomerate in the United Arab Emirates with total assets of US $4.05 billion. It recently logged in a net profit of US $138 million.

The joint-venture partners will make an equivalent contribution of US $one million each towards meeting the set-up costs. ICICI Infotech Services is also looking at foraying into strategic IT markets such as the United States of America, Europe and Australia. Today, ICICI is trying to leverage its local advantage by entering into joint-ventures and strategic alliances with foreign players. ICICI is seriously looking at acquiring software companies with local partners in a bid to develop its e-business.

Demat and dot-coms
As the emerging trend is to do business in partnership rather than individually, many FIs are looking at striking strategic alliances. Today service industries are playing a crucial role in enhancing the overall productivity of institutions. Traditional company balance sheets could lose their relevance in the future, as off-balance sheet items such as the fee business might account for a major portion of FIs' business.

Alongside, the universal bank concept is also fast gaining importance. According to Suresh Kumar, general manager of Emirates Financial Services Tricolour, the partnership would also aim at creating a global private banking service for NRIs.

Key initiative would be taken to provide varied forms of cash availability to finance growing investment needs in infrastructure development. Creating an universal bank, an equipment bank and developing sophisticated instruments for cash transactions would only help open up more investment avenues.

With demat practically in all the segments, Indian stock exchanges are moving towards paperless trading. Quick on the uptake, FIs such as IDBI and ICICI have also floated their own dot-com companies to grab the emerging opportunities in online trading.

Expectedly, ICICI has launched ICICIDirect.com. To make this online mode of trading more attractive, ICICI Web Trade has reduced the brokerage rates. For trades ranging from Rs 50 lakh to Rs one crore, brokerage would now be 0.5 per cent and for trades above Rs one crore, the brokerage would be 0.4 per cent. Earlier slabs were fixed at 0.6 per cent for trades above Rs 10 lakh per quarter and 0.85 per cent for others.

With the introduction of high volume trades, ICICI Web Trade has reduced the slabs. Since trading would be directly done through the Internet, transactions will be faster and volumes larger.

ICICI has other e-plans as well. It has plans to introduce margin trading in a couple of months with a pilot project involving a select group of customers. After having relevant data in place, the risk and credit ratings of margin product customers will be arrived at.

In a bid to offer customers the pleasures of banking and financial services, ICICI has plans to launch a mutual funds plaza, where all mutual funds would be allowed to offer online trading services to NRIs.

Internationally, e-transaction volumes are growing. To keep pace with the international trend, IDBI has initiated talks with Charles Schwab E Trade to get into e-biz. This term-lending institution is expected to foray into online share trading through its subsidiary IDBI Capital Market Services.

Online bill payments
All these e-initiatives by the domestic FIs can succeed only if basic legal and risk management issues concerning e-commerce are sorted out. But, the undeniable proposition here is that online trading will help the FIs realise most of their e-dreams. With FIs getting into e-trading, local brokers are going to feel the heat. Some of them have already initiated order-routing for investors through their e-trading sites with trading settlement and clearing of shares on the National Stock Exchange.

It is here that ICICI's online trading initiatives need to be hailed. It is being regarded as a pioneer among the FIs as far as Net-related services are concerned. Reports are that its online subsidiary ICICI Web Trade and software subsidiary ICICI Infotech Services are in fine fettle. Says Raghavendra Das, ICICI's vice president (communications): "We are in the process of e-enabling ourselves and have decided to expand the services such as Net banking, Bill Junction and online trading to a number of cities."

Sure, ICICI Web Trade is now trying to negotiate a possible tie-up with the Bombay Stock Exchange. But, to make such initiatives bear fruit, this online subsidiary will have to gear up and update its systems for functioning on multiple stock exchanges. The website ICICIDirect.com is expected to make life easier and less laborious for investors and enable them to place orders over the Net, make online payments for them and hold scrips in dematerialised form. The website will also give an update on trading volumes and news features from Reuters and Indiainfoline. Company chart sheets will also be provided to give an analytical background of a company's performance.

Going a step further, ICICI has taken efforts to make bill payments easier. ICICI has set up a payment gateway called Bill Junction, which enables presentation as well as payment of various bills. ICICI has plans to extend this service to several other cities in the near future.

In a bid to make this payment gateway active, ICICI has already tied up with entities such as MTNL, BSES and Airtel. ICICI has also tied up with Airtel, Skycell and Maxtouch to extend its mobile banking services.

To be sure, domestic FIs are turning e-savvy. They are busy designing several home pages with the sole objective of providing their customers easy access to detailed corporate research and financial information. This should help the FIs not only to expand their retail base, but also to rope in the growing number of NRIs.