Basel II could spell bonanza for IT firms

AUCKLAND (01/27/2004) - Data warehousing and business intelligence look set to benefit from emerging banking industry requirements.

Arvind Joshi, operations chief for Australia at Indian company ICICI Infotech Ltd., the technology provider arm of a US$19 billion Indian banking conglomerate, says the top 10 U.S. banks are spending approximately US$100 million on compliance with Basel II.

To comply with Basel II, a new set of worldwide banking standards covering risk assessment and operational processes, banks may need to get new systems to monitor statistics and automate workflow, among other areas.

"Data warehousing, business intelligence and credit risk assessment will get a lot of attention."

Visiting New Zealand last week, Joshi, a former IT executive at ICICI Infotech, IBM and Chase Manhattan Bank, extrapolates that figure to Australian banks, which own most of New Zealand's institutions, to suggest they could chip in as much as $A100 million (US$77 million).

As a product provider to financial institutions, ICICI, which has no customers in New Zealand and just one in Australia, has a vested interest in Basel II compliance.

Banks don't need to comply with Basel II until 2007, but many have already started gathering data in preparation, says Joshi.

"They're looking at loan loss data etc. and will use it to predict what will happen in the future."

Banks are likely to shift from using historical methods of credit analysis to predictive methods, with data warehouses of historical data integrating with applications that handle credit data.

As for "offshoring", Joshi says the trend towards western companies outsourcing to less costly providers in India and China is set to continue.

"For things like DOS and mainframe DB2-type apps are hard to find (expertise for) in the developed world, but in India you have every nook and cranny of platforms."

Some companies that used to outsource to India have gone on to set up their own shop there and brought the formerly outsourced operations inhouse; Joshi cites BMC as an example.

"Long term, software development as an industry in the developed world will diminish, because the cost of skills across multiple platforms will be very high. You've seen it in manufacturing and it will happen in software."

The wealth, however, will ultimately stay where the intellectual property behind the software is 0 in places like Silicon Valley in the U.S.

"It doesn't matter where the software development is being done, it's where the IP resides that the money is ultimately made."

Jobs are heading offshore in the U.S. and in Australia. Telstra outsourcer IBM recently decided to shift 450 jobs to India.

The key to mitigating the trend is for software IP to be created and retained in those countries, Joshi says.

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