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SBI, railways laying ground for billion-dollar outsourcing deals

SBI, railways laying ground for billion-dollar outsourcing deals

In what could be two of the biggest tech outsourcing deals in the country, Indian Railways and State Bank of India Ltd (SBI)—the biggest lender in the world’s second fastest growing major economy—plan to spend nearly $1 billion (Rs4,120 crore) each on procuring application software, hardware systems and services as they seek to become more agile by automating their core business processes.

Apart from foreign-owned tech vendors such as Mphasis Ltd and International Business Machines Corp. (IBM), India’s largest software services firms—Infosys Technologies Ltd, Wipro Ltd, Tata Consultancy Services Ltd and HCL Technologies Ltd—are in the fray for these deals as they aim to reduce dependence on the US, their traditional market that accounts for over 70% of their total revenues.

“The top four Indian vendors are already in talks with Indian Railways officials for exploring the opportunity," said Rajdeep Sahrawat, vice-president of trade body National Association of Software and Service Companies, or Nasscom.

SAP AG, the world’s biggest software maker for enterprise applications, has also expressed interest “as Indian Railways are one of the biggest business prospects for the company," said executives at the firm’s India unit. The executives did not wish to be identified. The Delhi Metro Rail Corp. already uses SAP software for integrating its processes of finance, accounting and human resources.

Indian Railways is looking to float a tender valued at approximately $1 billion for integrating its functions of finance, logistics and human resources under one software application.

SBI officials are discussing details of a total outsourcing deal, wherein it will pay around Rs60 lakh for the computerization of a branch for around 10,000 branches across the country as part of a five-year deal that will help the bank focus better on its core banking functions and reduce huge operating costs of managing complex information technology (IT) systems in-house.

“We have been in discussions with SBI for a full-blown IT outsourcing, but it is still at an early stage," said Deepak Patel, managing director and chief operating officer of Mphasis. His company already does back-office processing for SBI and is exploring newer areas for expanding the deal.

According to research firm Frost & Sullivan, government sector enterprises such as the ministry of finance, Oil and Natural Gas Corp. Ltd, Bharat Sanchar Nigam Ltd and Indian Railways will spend nearly $3 billion this year on buying new software, hardware and services. Many of these organizations are forced to look at spending big on technology because “the Planning Commission has been aggressively encouraging them to become more efficient with the help of technology," said Sahrawat.

Indian Railways, which is expected to float a request for proposal during early September, “will invite partners to either build a new solution from scratch, or even propose a packaged solution that could be implemented," said Sahrawat. The size of the enterprise resource planning (ERP) project “could well be around $1 billion, if we take even hardware spend into account". The expected user base for the ERP software, when ready, is expected to be around 1.6 million. This will make it one of the biggest ERP implementations in the world. In a recent presentation made to Nasscom, Indian Railways officials said the organization would be spending nearly $2 billion on technology over the next five years.

Currently, SBI spends over Rs450 crore annually on buying new software and managing IT systems from its Belapur, Navi Mumbai-headquartered IT centre, according to industry insiders.

Calls to SBI’s deputy managing director for information technology Ashwin Sharma for comment were not returned. While the bank is only looking at covering 10,000 of its branches to begin with, the contract value could exceed Rs10,000 crore once SBI’s total 14,000 branches are brought under the outsourcing agreement.

The rationale behind total outsourcing is to bring more cost efficiency in areas such as cheque clearance, which costs Rs4 for an Internet-based transaction against Rs27 for physical clearance.

Two of the biggest outsourcing deals in India so far—Bharti Airtel Ltd’s $750 million contract, which is now worth over $1.7 billion, and the $600-800 million outsourcing pact with Idea Cellular Ltd—have gone to IBM.

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