CIOIN

Interview Questions

Full Interview with Gagan Rai

Gagan Rai:

When we started in 1996, NSDL was the first venture of its kind. We were the first depository in India and even today we are the largest. The challenge was that we did not have any precedents to follow. We knew that we would have to chart our own course, learn from our own untiring efforts, and set our own benchmarks. How many times could we approach international depositories and ask them for advice?
So we created closed user groups in the market that comprises intermediaries like custodians, banks, stock brokers and R&T (registrar and transfer) agents, who constantly told us what they wanted from us. We also started investor depository seminars from day one during which we distributed slips of paper and asked investors for their suggestions. Based on these suggestions, we created a databank and all the developments that we have carried out so far are based on investor feedback.
Understanding and fulfilling the needs of customers is the best strategy to put a business on a firm footing. We learnt the importance of customer centricity to our business. It has helped us gain first-mover advantage and bag many prestigious and first-of its-kind projects.
The other learning is that this is a business of trust. We have 1.17 crore account holders who hold dematerialized stocks worth Rs 64 lakh crore—which is around the GDP of the country. That’s why investor trust is of paramount importance. The system must function smoothly. Investors must be able to see transactions they have undertaken with a complete record of date and time.
We also learnt that IT is a lifeline to our operations. Technology is as important for a depository as a production plant is to a manufacturing company. IT is not a mere support function but the engine through which services are delivered. The sheer volume of our transactions is possible only because of the robust, scalable, and flexible platform that IT provides. We have 1.17 crore accounts today and process about 10 million messages a day. We emphasize on things like data integrity, audit trails, reconciliation, sending out SMS alerts, etcetera. These factors foster investor trust in the depository system and this can’t be done without the help of IT.

Gagan Rai:

There is a very significant involvement of IT in our business. While our core depository system maintains a database of all investors, the Depository Participant Module (DPM) system maintains a database of the respective clients of depository participants (intermediaries between depositories and investors). These databases remain synchronized through a messaging layer and there is a system-enforced reconciliation.
Volumes in the capital market are unpredictable. Yet, being a capital market infrastructure just like exchanges, we have to be prepared to service market demand. Regulators and customers expect us to handle any scale of transaction. So ensuring flexibility and scalability is key. Therefore, we have made investments in infrastructure and have the ability to scale up in the shortest possible time. We have also made significant investments in setting up an identical IT infrastructure for our disaster recovery (DR) site. We actually operate from our DR site once in every six months. When we shift our production to the DR site, the main site starts working as a backup and this continues for one full week.
Recently, we rewrote our entire software called the New Depository System (NDS) under the guidance of IIT. We implemented the software without disrupting business activities. It was like changing an aircraft’s engine in mid-air. The market did not even notice that such a huge change was taking place. The NDS architecture affords 10-fold incremental horizontal and vertical scalability. Further, the system launched for our depository operations is platform-agnostic. Our system works on a mainframe with DB2 as a database but it has also been tested to work efficiently on Unix and Oracle platforms.
We also keep assessing the capacity of our infrastructure on a daily basis. If there is a surge in transaction volumes on a sustained basis, we augment capacity. Since 1996, we have upgraded our capacity on five occasions and there has been 40- fold capacity upgrade.

Gagan Rai:

IT gives us a complete audit trail. In that manner, the depository system is safer than banking system. If you give a bearer check to somebody, he withdraws the amount and goes away. It is difficult to catch him. With a depository, there is nothing to be withdrawn. In a demat account there are shares which can only be transferred to somebody else or sold in the market. So when you transfer to somebody and he transfers to the broker, there is a complete audit trail that is maintained and that’s possible only because of IT.
Second, whenever there is a debit from an account, we send an SMS alert to the investor. Technology is the backbone of our business. We lay a great deal of stress on data integrity and reconciliation.

Gagan Rai:

From the conceptualization stage. Rajesh Doshi who heads the IT department at NSDL is our senior executive director and acts as CIO. He is involved in all major business decisions. It is not like the business will raise a demand and then IT will come into the picture to fulfill that demand. From the beginning, in any project or any module, IT is involved. Business and IT work in close collaboration with each other.

Gagan Rai:

One of the best ways to ensure that is to choose the right kind of partners. Our first business partners were depository participants. Similarly, we have also chosen business partners called TIN facilitation centers. We choose our business partners well and then train them on a continual basis. We have undertaken a lot of training and investor education. There are very few entities in the market who educate investors at this scale. We also train our participants and intermediaries because they provide services on our behalf. A depository participant cannot go live on production unless and until he is trained by us. After that, all centers where they provide their services must have at least one person trained by NSDL.
We also go to the extent of training all internal auditors of DPs. Then we also have a training program for system administrators. There is another training program for compliance officers. There is a very high focus on training, which helps us successfully maintain an ecosystem that enables the organization to undertake and deliver on such high-impact projects continuously.IT plays a very critical role. We have a policy that makes the CIO a very important member of our senior management and other committees. Whenever we get a project on behalf of a particular client, no discussion starts with them unless the head of IT is sitting in the room. He appreciates the business requirements and then works in conjunction with the business team.

Gagan Rai:

At present, we have arrangements in the form of MOUs with various international depositories. As of now, these MOUs are only for the exchange of knowledge and for training of personnel. Since the government has announced that Indians can make investments abroad, and the foreigners can invest in India in mutual funds, collaboration and connectivity with international depositories will be very important.We have two options: Either we connect to the depository of each country or we connect with an international depository which handles transactions for many countries. The second option seems to be better. Here again, there are two options. One is doing it through nostro vostro. The other way is through custodians. But whatever way we choose, IT is going to play an important role. Ultimately, it has to be all STP (straight through processing). No papers are going to be exchanged between
our depository and their depository.

Gagan Rai:

Our saving rate is 36 percent of GDP. At the same time, income and wealth inequalities are very high in India. Therefore, a large chunk of the population  does not want to invest in the capital market. Instead, they invest in gold or fixed deposits. We have to go to them and explain the benefits of investing in the stock market; maybe initially through mutual funds. We need to enhance the investor education initiatives many-fold.

Gagan Rai:

I believe that for a country like India, financial inclusion is the way forward. Banking and financial services should be offered to people at the bottom of the pyramid. Around 83 percent of India’s pincodes are covered in the addresses of investors of NSDL.
Second, we need to lower costs to facilitate financial deepening. And lowering cost is only possible with the help of IT. The days of warm banking are gone. The time is coming when ATMs have to be at all places. Slowly, we are progressing towards off-the-shelf banking. Transactions should be online and automatic and IT facilitates that. It also brings down the cost of each transaction. For instance, NSDL has reduced settlement fees charged to participants eight times in the last 14 years. Today, the per transaction cost (cost per debit) is only Rs 4.50 irrespective of the value of a transaction. Even if you transfer one million shares of Reliance, our charge is only Rs 4.50.Transaction convenience is equally important. In this regard, one of facilities that NSDL provides is the speed-e facility through which somebody sitting at home can carry out transactions via the Internet. Thus, with the help of IT, customers can debit their accounts and sell securities sitting at home or at the office.

Gagan Rai:

One of the challenges we have always had is the uniqueness of this business. We are neither a bank nor a stock exchange nor an IT organization, but we are similar to all the three. A depository account looks like a bank account. IT is the backbone of a depository. And in some ways, we resemble a stock exchange because we do transaction settlements. The challenge has been in retaining the right kind of people and training them. When a staff member shifts between banks, the bank does not have to impart a great amount of basic training. But when somebody comes to NSDL, their orientation and training is very important. One way we have been able to keep our
attrition rate low is the large number of new projects that keep coming our way on a continual basis. Every two years, a new, entirely different project comes to us. Take for example, the Central Record Keeping Agency system for New Pension Scheme which we developed for the Pension Fund Regulatory and Development Authority. Then there are the GST and UID projects. The excitement of doing something new keeps people interested and involved.