Internet and Mobile Banking will be the Big Changes, Going Forward: Naina Lal Kidwai

She is the first woman president of FICCI, a Padma Shri recipient, a Harvard Business School alumnus, and the woman at the helm of one of the world's most renowned banks. Naina Lal Kidwai needs no introduction. As the group GM and country head of HSBC India, Kidwai has been instrumental in charting the growth path of HSBC in India for the past 10 years. In this interview, Kidwai talks about the changes shaping the banking sector, how IT is aiding private banks do a one up on public sector entities, and how it is redefining banking.

CIO: What are some of the most significant shifts that you've witnessed in the banking sector?

Naina Lal Kidwai: There are two significant shifts that I have witnessed in the banking sector: One is rapid technological development, and the other is the volatile nature of the retail business. This is true not only at HSBC, but also for the industry because every change brings a new model for growth.

On the technology front, what we have today is a banking sector, which--including public sector banks--is driven off a strong technology platform. But ten years ago, the public sector was wary of adopting technology as unions opposed it. Today, public sector banks easily work off these platforms, and as a result, the sector is very well connected. Technology solutions are being provided by the best in the IT industry, hence there is no compromise on quality.

I think this sets the standard because the private sector has to be technologically better when competing against well-funded public sector banks. The private sector scores for the fact that it is more agile. It is able to easily adapt and bring in new technologies into play faster.

Banks like HSBC brought the first ATM to the country. I must say that foreign banks do help in bringing in cutting-edge technology. And this ensures that we have a global offering in India.

CIO: Could you elaborate what technology changes are shaping the banking sector?

Naina Lal Kidwai: I think the big change, going forward, will be around Internet and mobile banking. The Internet banking platforms of banks in India are truly secure and--to that extent--we do have strong security technologies available in India. Also, our customers today are adopting technology at a much faster rate than ever before, given the youthful nature of our population.

On the other hand, an element that we have not leveraged effectively--which if you'd asked me five years ago I would have said was "the" technology--is mobile telephony banking that isn't just SMS-led. We are yet to reach a stage where your mobile phone is your wallet.

I think the next leg of this mobile telephony banking is going to be an important one for us.

CIO: How does IT help you stay compliant with regulatory mandates?

Naina Lal Kidwai: I think, with respect to keeping pace with regulatory changes, there is very little that constrains you. Sometimes, when you are a part of a larger organization, the decision-making is such that you cannot have a technology in one location, which is different from what you have in others.

This is because it is important to ensure that all the technology platforms are linked together. Also, you can't easily add on something that makes your global systems insecure.

So, in some ways, being a big organization and functioning across geographies poses its own constraints. But it also helps because you can easily import innovations. However, in order to keep all your systems and processes intact, there are multiple layers of checks and balances that you need to go through.

Here's where technology can help. In terms of security, technology definitely plays a big role. The ability to screen and know exactly what is happening is important. Also, the ability to put security walls and ensure that central systems do not get impacted is part of a security technology's evolution process.

I think no one will get it right all the time because technology evolves continuously, and sometimes, you learn things the hard way. But the good news is as long as we can learn about something that didn't work somewhere else in the world we can avoid repeating those mistakes.

Technology must continue to evolve. The worst we could do is implement a change, sit back and relax, only to find out that six months down the line, something else has come out that is far superior to what has been achieved or implemented by us.

CIO: How can organizations avoid falling into this trap?

Naina Lal Kidwai: You need to be able to move ahead, abandon what's not working, and make sure you are always listening to your customer. If we rely only on the technology guys, we will have an excellent system, but it may not be the best for the customer.

However, we can't get our relationship manager to drive a customer-friendly technology initiative which doesn't meet other IT criteria like security, controls, and integration with other IT systems.

We should be able to check what our customers have to say. Having customer engagements in the front-end, and bringing out technology solutions that are customer-centric is vital.

We need to ensure that all the voices on social media platforms get heard, assembled, and due consideration is given to them. You have to keep all channels open for ideas and innovative solutions.

CIO: HSBC India is enjoying healthy profit margins. How did you manage this in a down economy?

Naina Lal Kidwai: We tend to be a conservative lender. By not having an aggressive lending strategy in periods which were not that good for the economy, we were spared the large NPAs (non-performing assets) that other banks accumulated.

We also took a view of certain sectors like power and airlines where we either got out in time or just weren't there. So we didn't get hit by those. We got the full benefit of the growth sectors without getting hit by those that didn't do well. I think our risk strategies, analysis, and experience helped us enormously in terms of our lending book.

CIO: How has IT helped you achieve this?

Naina Lal Kidwai: The risk models are developed with two things: Degrees of refinement, and inputs that come in from Hong Kong and the U.K. But at the end of the day, we are dependent on a system that captures data. And here it is all about MI (management information).

It is about data that is captured in a way that reminds you of what may have happened in the past. The analysis of the information and the financials are all, at some level, IT-enabled. So IT's role is very big.

The reports that our risk head presents to us at the APAC board-level meetings are phenomenal. It includes data across all the countries in this part of the world, which represents close to 66 percent of the profits of HSBC. We are able to understand this because of systems that have been set up and are able to pull together data in meaningful ways. To have good risk processes is important and to have the MI around risk--enabled by IT--is also very important.

CIO: What are your expectations from a CIO and what does the role entail?

Naina Lal Kidwai: First of all, a CIO needs to understand the business. If he doesn't understand the business, he wouldn't be able to drive change. While he has to be customer-centric--towards external customers--the CIO should also focus on his internal customers, the employees of the bank.

For a large multi-national like us, the CIO needs to be constantly aware of the next wave of technology. It is important that he inputs and implements those technologies in the country or in his sector. If the technology is relevant, he should put his hand up early enough to get it here. That way, we are at an advantage, since 60 percent of all IT software development for the global HSBC group happens in Pune and Hyderabad.

Our CIO is on the board of our IT company in India so that he has moral authority to understand what is happening right under his nose. There was a danger, otherwise, of a disconnect between our software team reporting to the U.S. and our India team reporting to Hong Kong.

Externally, the CIO needs to keep an eye on what the competition is doing. I think knowing what the competitive landscape looks like in one's immediate vicinity is very important. He needs to know what technologies are being implemented at say ICICI or HDFC bank, so that we can pick up on that.

It may not be a technology we can implement, but we should make sure we know what's happening and explore every avenue to ensure that we too can. And if we can't, we should have a good reason.

It is also about having a good team. The CIO obviously can't do everything himself. So, it becomes important for him or her to show a commitment to the team.

We also have the added need to have fraud control and security, and this goes beyond what you do in-house. How do you engage with external agencies like the police and know the system and processes necessary to take action once you detect fraudulent activities? The whole chain, therein, needs to be understood as well.

CIO: What is the role of a foreign bank in helping the cause of financial inclusion?

Naina Lal Kidwai: What we are going to see in the spirit of financial inclusion is an ease of opening bank accounts for the financially excluded. This is important as 40-50 percent of Indians still don't have a bank account.

HSBC has leveraged an IT-enabled financial inclusion eCard solution in rural India to help a women's co-operative bank, potato farmers, and even dairy farmers. These are groups that do not have the capability to do Internet banking. The solution enables them to access basic information.

Getting past the entire KYC (know your customer) issue was tough. But the Aadhaar card will help in this regard as the RBI has said it will be accepted as proof of identification. We will be able to simplify the entire KYC process with the electronic model.

The counter-point to this is that banks are also going to be far more security-conscious. The emphasis on security of information will also mean that the customer will have to put in more effort when he fulfills the KYC norms. However, he'll need to do it just once.

At the end of the day, there are multiple ways by which money can move through banks. And banks do not always have the ability to trace the source or check if the person depositing the money has paid his taxes.

CIO: Is consolidation really inevitable in the banking sector?

Naina Lal Kidwai: Consolidation will happen and it is good that it is happening. India needs a bigger banking sector and that will come in two ways: More big banks and more banks in general. Consolidation is a natural process. Some banks outlive their utility and their strength comes in being absorbed by others.

You can have small banks which have every reason to exist because of the niche they serve. So, it doesn't always have to be just big banks. You need a variety of banks but at least two or three banks should make it into the top 50 banks in the world. This is not asking for much. For a large economy like ours, we need bigger banks that stack up in the context of global scale.

I am also pretty sure that we do not need 70 percent of the banking sector to be government-owned. That's a big problem for the government as it has to keep pumping money into these banks. Let the government own some--say the SBI--but why 70 percent of the banking sector?

There is certainly room for the government to shed some of the public sector banks, consolidate others, and allow for a mix of healthy private sector banks which provide a competitive landscape. Ultimately, competition is good for the customer and it definitely strengthens the banking sector.

Anup Varier is a principal correspondent for CIO India and ComputerWorld India. Send feedback on this interview to

Copyright © 2013 IDG Communications, Inc.

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