TABLE OF CONTENTS

Sr.No Chapter Name Page No.

1 Outsourcing
2 Services of Outsourcing
3 Functions of Outsourcing
4 Manufacturing Outsourcing
5 Process in banking and financial sector
6 Activities In banking and financial sector
7 Human Resource Outsourcing
8 RBI Guidelines
9 Case Study
10 Conclusion

EXECUTIVE SUMMARY

Ever since outsourcing in the services sector began to evolve, the banking industry has been in the
forefront to take advantage of this trend. While it started with non-core activities in the periphery, as
capabilities and confidence grew, it has progressed to business enablers Such as IT and then to critical back
office processes and pre-sales/post sales support activities. Trade Services such as letters of credit, offered by
banks is a critical business activity that has been considered for outsourcing by major banks in recent times.
Interestingly, as we shall allow the need is not just because of cost, but due to other multiple interlinked
business factors.

As banks are regulated entities, the outsourcing of banking services has received the attention of
central banks. The Basel Committee on Banking Supervision (which is a global central bank organisation)
through a Joint Forum has identified key risks in outsourcing of banking services and has provided
recommendations on how central banks and banks should address these risks. We will go through the
highlights of this consultative document in this paper.
 1.OUTSOURCING

1.1 Introduction
The banking industry has witnessed an all-round expansion and growth fundamentally driven by
hightened competition, rapid technological advancements, financial inclusions changing regulatory
environment and consolidation etc. This rapid expansion and the growth in the industry, centralization and
penetration of I.T. systems, the need to focus on core services and introduction of new services have
influenced the need of outsourcing in the banking industry. Apart from cost savings and accessing specialist
expertise not available internally, for achieving strategic aims and efficient delivery mechanism, outsourcing
remains preferred destination for enabling perfection in selective business processes.
However, this outsourcing has resulted the banks being exposed to various risks Recognizing the need
for outsourcing some of the selected activities by the banks. Reserve bank of India has put in place
comprehensive guidelines for addressing the risks that would be exposed to on account of engaging any
outsourcing agency.
1.2 Definition of Outsourcing
Outsourcing can be the initial transfer of an activity (or a part of that activity) from a regulated entity
to a third party or the further transfer of an activity (or a part thereof) from one thirdparty service provider to
another, sometimes referred to as “subcontracting.” In some jurisdictions, the initial outsourcing is also
referred to as subcontracting. Firms should consider several factors as they apply these principles to
activities that fall under the outsourcing definition. First, these principles should be applied according to the
degree of materiality of the outsourced activity to the firm's business. Even where the activity is not material,
the outsourcing entity should consider the appropriateness of applying the principles. Second, firms should
consider any affiliation or other relationship between the outsourcing entity and the service provider. While
it is necessary to apply the Outsourcing Principles to affiliated entities, it may be appropriate to adopt them
with some modification to account for the potential for differing degrees of risk with respect to intra-group
outsourcing. Third, the firm may consider whether the service provider is a regulated entity subject to
independent supervision. According to this definition, outsourcing would not cover purchasing contracts,
although as with outsourcing, firms should ensure that what they are buying is appropriate for the intended
purpose. Purchasing is defined, inter alia, as the acquisition from a vendor of services, goods or facilities
without the transfer of the purchasing firm's non-public proprietary information pertaining to its customers
or other information connected with its business activities. This paper will refer to a regulated entity as the
body that is authorised for a regulated activity by a regulator. The principles set forth in this paper are
targeted at such entities. Third party or service provider refers to the entity that is undertaking the
outsourced activity on behalf of the regulated entity. The term regulator refers to all supervisory and
regulatory authorities that authorise firms to undertake any regulated activity and supervise that activity.

1.3 Indicative list of activities that can be outsourced.

Financial services that can be outsourced by the bank may include application processing (loan
origination, credit card), document processing, marketing and research, supervision of loans, data processing
and back office related activities. An indicative list of activities that may be considered for outsourcing shall
be as under:
 Opening, settlement and closing of accounts.
 Issue and processing of cheques.
 Managing of customer queries(Call Centres).
 Recruitment, Selection and Training of Personnel.
 Administration of Payroll and Taxation.
 Marketing of Bank products.
 Cross Selling of bank products like insurance and Mutual Funds.
 Credit Card and Debit Card customer acquisition/queries.

The above list is indicative only and not exhaustive. Additional activities within the definition of
outsourcing can also be outsourced by the bank.

1.4 Activities that should not be outsourced

Core Management functions including Internal Audit, Compliance Function and Decision-making
functions like determining compliance with KYC norms for opening deposit accounts, according sanction
for loans (including retail loans) and management of investment portfolio shall not be outsourced by the
bank.

1.5 Reasons for Outsourcing

 While outsourcing has grown in importance across all three financial sectors, patterns of outsourcing
are not identical in each sector. In particular the fund management and insurance sectors have, for some time,
outsourced activities that could be potentially considered to be core functions. These include:
• Investment management: Many insurers and fund managers now outsource investment management to
external parties and/or related group entities.
• Unit pricing and custody: In many instances the striking of unit prices and custody arrangements are
outsourced to third parties in respect of unit linked funds and products.
• Underwriting and claims payment: some underwriters allow insurance brokers to accept certain
underwriting risks on their behalf and to process claims.
There are genuine reasons for this trend, such as the importance of core expertise when entering a new
market, and the benefits of economy of scale, but arrangements can still go wrong in some cases.
Companies outsource to avoid certain types of costs. They outsource the non core activities. Among
the reasons companies elect to outsource include the avoidance of regulations, high taxes, high energy costs,
and cost associated with defined benefits in labour-union contracts and taxes for government-mandated
benefits. Perceived or actual gross margin in the short run incentives a company to outsource. With reduced
short-run costs, executive management sees the opportunity for short-run profits, while the income growth of
the consumer base is strained this motivates companies to outsource for lower labour costs. However, the
company may or may not incur unexpected costs to train these overseas workers. Lower regulatory costs are
an addition yo
companies saving
money when
outsourcing.
On companies
costs, a U.S.
employer typically
incurs higher
defined benefit costs
associated with taxes to
account for social
security, medicare,
safety protection
etc than in other
countries.

Import marketers may make short-run profits from cheaper overseas labour and currency mainly in
wealth-consuming sectors at the long run expense of an economy's wealth- producing sectors, thus straining
the home country's tax base, income growth and increasing the debt burden. When companies offshore
products and services, those jobs may leave the home country for foreign countries, at the expense of the
wealth-producing sectors. Outsourcing may increase the risk of leakage and reduce confidentially, as well as
introduce additional privacy and security concerns.

1.6 Types of Outsourcing

Outsourcing is the process by which an organisation contracts with another individual company to get
some of its work done. Viewed this way, most organisations go for some kind or other kind of outsourcing.
Generally it is non-core aspects of the business that are outsourced.

The firms that offer the services thus required are called service providers or third-party providers.
Business may thus tie up with service providers for either individual processes or whole project or
operations. Outsourcing can be divided into the following categories.
 BPO (Business Processes Outsourcing)
 KPO (Knowledge Processes Outsourcing)
 Data entry Outsourcing
 IT Sector Outsourcing
 Health Sector Outsourcing
 Financial Sector Outsourcing
 Engineering Services Outsourcing.

1. Business Processes Outsourcing

Typically, BPO services include:
Inbound call center services – These typically include answering services that are available 24X7. Call
center agents can also be trained to up-sell and cross sell services, take orders, and provide information on
the benefits and features of products/services
Outbound call center services – These include services like telemarketing services, lead generation services,
and market intelligence services
Technical helpdesk services – This includes technical after-sales support for products and services

2. Knowledge Process Outsourcing (KPO)

A KPO typically provides domain-based processes and employs advanced analytical skills and business
expertise, rather than just process expertise. Some research services include:
Market research and analysis – These services help the business extract useful information that reveals
current trends and provides inputs for decision-making
Web-based market research – These services help collect information from different websites. As compared
to primary research where data is directly collected from respondents, data is collected from secondary
sources like government publications and newsgroups

3. Data entry outsourcing

All organizations, whether big or small, have data entry requirements. Data entry outsourcing can be divided
into:
Online data entry – These includes services such as compilation of data from websites and e-books, updating
online catalogs, and creation of databases
Offline data entry – These include services such as offline data capture, fillings of forms, forms processing,
data entry from one format/version to another, MS Word document data entry, etc
4. IT sector outsourcing
IT outsourcing typically includes outsourcing of software development. This may take the form of end-to-
end outsourcing where all activities related to design, development, and testing are outsourced. In other
cases, only a part or portion of the overall system is outsourced for development. This is in cases where the
client does not have the requisite skills or technology for the development work.

5. Healthcare sector outsourcing

Medical outsourcing includes a diverse range of HIPAA compliant services. These include:
Medical transcription services – These include services to transcribe information from a variety of audio
sources and file formats such as MP3, MPG, MOV, DSS, WMA, etc
Medical coding and billing services – These services are delivered using popular billing software like Medic
and Lytec
Teleradiology services - These services provide 24X7 access to qualified radiologists

6. Financial sector outsourcing

Accounts outsourcing services include:
Accounting services – These include preparation of financial statements for the statutory annual audit, cash
forecasting services, and payroll services
Bookkeeping services – These include preparation and maintenance of both day-to-day books as well as
monthly and quarterly accounts. It also includes preparations of different kinds of reports like sales reports
Financial analysis services – These include analysis of financial information such as financial statements,
portfolio structures, and offer documents

7. Engineering services outsourcing

These include a range of mechanical, civil, structural, and architectural engineering services:
Computer aided design (CAD) services to develop prototypes
2D drafting services
Conversion of paper drawings into a digitized format
Design and analysis for residential and industrial buildings
Architectural visualization services (3D rendering or 3D animations)
Services for evaluation and strengthening of deteriorating structure
 2. SERVICES OF OUTSOURCING

2.1 Services:
Indian BPO providers provide this service for banking & financial industries at the best competitive
price. We are a leading BPO service provider for the banking & financial industries in India. We have been
providing banking & finance BPO service globally for more than 5 years. Our BPO service are cost
effective, enlarging banking scope and optimizing the respective revenue within a short span of time. We
offer following BPO services for banking & finance Industries:

1. Retail Banking
We offer back-office and front office services for small, mid-sized to large enterprise bank as we have
large team of trained and smart software professionals. Our banking & finance BPO service include new
account set up, checks and returns processing, payments and transactions processing, query handling via
phone and e-mail, collections and client reporting.

2. Commercial Banking
As we have a team of proficient business analysts, we offer full range of services to support the loans
& advances value chain, from package review and underwriting to booking, insurance, taxes, cash
applications, customer servicing, portfolio servicing, collections through final pay off. We also offer services
in risk operations such as agency & branch payments, offset posting and moreover check fraud research
postings.

3. Mortgage Services
Indian BPO's offer an end-to-end Mortgage BPO solutions that help lenders address challenges. Our
mortgage services integrates our innovative business analytics and solutions to reduce costs and enhance
efficiency. Our Mortgage services include support sales, processing, underwriting, closing and funding, post
close and quality control as well as servicing.

4. Credit Cards
We have rich experience in the credit card industry. Our credit card finance BPO service cover
activities such as lead & campaign management, support document management, data verifications, account
maintenance, static data/card type, status changing process maintaining sweep accounts/ debit authorization,
payments and settlement activities etc.
5. Investment Services
As we have vast experience in the banking and finance industry, we understand the importance of
quality & accuracy and strives to meet the most stringent demands. Our emphasis are not only to concentrate
in supplying the right analytics and technology to drive efficient processes, but also on supplying the right
people at the right time.
 3.FUNCTIONS OF OUTSOURCING

Outsourcing can be a great way to get quality results, without paying high prices. You can achieve
quality results by outsourcing firms who are experts in the certain areas of your business. This allows you to
easily capitalize on their expertise and abundant knowledge. Furthermore, it allows you the flexibility to
focus more on your core business operations, while cutting down on administrative cost.
There are several basic business functions that can easily save you time and money by outsourcing.
They are:

1. Manufacturing
Manufacturing is the business of producing industrial good, and can encompass anything from
embroidered hats to drill parts to car stereos. Manufacturing is capital intensive, meaning that it involves a
lot of money and specialized machinery and operators who know how to work them, and modern
manufacturing often involves frequent changes to machinery and production.

2. Human Resources
Keeping up with benefit packages, employee law standards, and wage issues are functions that should
not be taken lightly. The human resources department needs continuous training and education as laws,
benefits and protocols change frequently. Therefore if you are concerned about the high cost that
accompanies hiring employees and providing consistent training, then you probably can achieve the same
goal by hiring a great reputable human resources firm to perform these functions for you.

3. Legal Services
This is a controversial issue, but it demands some discussion. Many companies are outsourcing their
basic legal needs to companies that are located in places such as India
Some American companies are requiring that their basic legal task to be performed by legal documents,
researching legal codes or drafting contracts. If that is not enough to convince you, companies such as
DuPont, Morgan Stanley and Cisco Systems were said to have successfully outsourced their 14 legal
departments to an outsourcing firm permanently. Not to mention, these firms are located in India.

4. Accounting or Book Keeping Services.

There are many accounting firms that offer outsourcing capabilities that are both convenient and
economical. These firms can do everything from pay vendors, invoice clients, pay employees, prepare
quaterly payrolls/sales tax reports and provide online access to all of your information. You are also assigned
a representative to your account, in which you can contact if you have any questions.
5. Information Technology
IT Outsourcing needs is a great way to save on cost and office space. Instead of hiring an IT
department, you can hire an IT firm who would be able to perform the same services as your employees
would. Now, with the advancement of technology it makes it even easier to perform and manage IT issues
remotely. Most outsourcing firms provide both onsite and remote monitoring, desktop support services,
hardware/software updates, training, and technical support.

6.Website Services
This is another great way to effectively outsource a much needed function. Website design and
development is not a job that needs to be conducted at your office. Outsourcing allows you the option of
selecting from a local firm, or one that is miles away from your business. Most firms can assist you with
many internet related activities such as website design/ development, email marketing, search engine
optimizing and e-commerce. Therefore, by creating an informative and quality driven website, you can rest
assured that your web presence will give you a "leg up" on the competition, without the added cost.

7. Knowledge Process Outsourcing

Companies can decide to outsource some of the high value and high skill requiring jobs to places
where they can have access to some of the best talent in that particular field. People working in a KPO are
highly skilled and qualified individuals such as lawyers, doctors, engineers, MBA's Chartered Accountant,
Company Secretaries etc. Experts in market research , investment bankig and research, medical research,
patent management and reseach , legal research, engineering and construction specialist etc.
The list of functioms that can be outsourced can be endless. What should of course be kept in mind is
the nature of your business and the demands of your customer. Outsourcing can help increase your profit
margins however what needs to be determined is how you can make it work for you, to your advantage.

3.1 Advantages of Outsourcing

Following are the advantages of outsourcing:

1. Reduced Operational and recruitment costs.

Outsourcing eludes the need to hire individuals in-house hence recruitment and operational costs can
be minimized to a great extent. This is one of the prime advantages of offshore outsourcing.

2. Risk-Sharing
One of the most crucial factors determining the outcome of a campaign is risk analysis. Outsourcing
certain components of your business process helps organisation to shift certain responsibilities to the
outsourced vendor. Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better.

3. Concentrating on the core process rather than the supporting ones

Outsourcing the supporting processes gives the organisation more time to strengthen their core
business process.

4. Swiftness and Expertise

Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced
vendors also have specific equipment and technical expertise, most of the times better than the ones at the
outsourcing organisation. Effectively the tasks can be completed faster and with better quality output.
5. Lower personnel costs
Some businesses choose to take their outsourcing one step further but choosing a vendor, located in
another part of the world. Doing so typically saves them more money because they end up paying a much
lower wage than would be necessary in their home country by outsourcing job duties to non-employees, a
business does not have to pay consistent wages or offer additional employee benefits.

The company may pay lower taxes because independent contractors, the people who complete the
outsourced projects, pay their own withholding, social security and other taxes. This can add uo to
substantial savings.
Outsourcing gives a business the flexibility to change third- party vendors whenever necessary. This
process is not as time consuming as the normal employee hiring process, because they are not screening
individuals, they are considering established with proven track records.
3.2 Disadvantages of Outsourcing
Some of the major disadvantages to outsourcing include poor quality control, decreased company
loyalty, a lengthy bid process, and a loss of strategic alignment, etc. Following are the important
disadvantages of outsourcing:
1. Risk of exposing confidential data
When an organization outsources HR, payroll and recruitment services, it involves a risk if exposing
confidential company information to a third-party.
2. Hidden costs
Although outsourcing most of the times is cost effective at times the hidden costs involved in signing
a contract while signing a contract across international boundaries may pose.a serious threat.
3. Lack of customer focus
An outsourced vendor may be catering to the expertise needs of multiple organizations at a time. In
such situations vendors may lack complete focus on your organizations tasks.
4. Synchronizing the deliverables
In case you do not choose a right partner for outsourcing, some of the common problem area include
stretched delivery time frames, sub-standard quality output and regulate these factors inside inside an
organization rather than with an outsourced partner.
5. Undesirable results
One of the biggest disadvantages of outsourcing is desirable results. This is especially true when a
company hires a third party vendor to mass produce a product. In the event that the finished products do not
meet quality standards, the manufacturing process must be repeated be a different vendor. Not only is this a
waste of time and materials, it can also be very costly for the company who outsourced the project. They are
essentially paying twice for the same job. In addition there is always the possibility that the company may
lose sales, during this same period because of the lack of available product.
6. Unemployment
Another disadvantage of outsourcing is a loss of jobs. Many times work is outsourced simply as a
means to save money. Outsourcing to a foreign country typically saves a company a great deal in wages. So
the choice is made to reduce their local workforce at the expense of the laid-off employees. In turn, it can
cause community uproar and even a decrease in business and profits. This happens when local consumers
make the decision to shop elsewhere, as a way to voice their disdain.
 4.MANUFACTURING OUTSOURCING

4.1 Meaning
Cutting costs and providing customers with the best products possible is always a concern for
manufacturing plants. If you are trying to reduce the amount of money you spend in manufacturing process,
you may need to consider third-party manufacturing.
Establishing a contract will be one of the hardest parts as you need to try and limit your liability
when it comes to the product. Since another manufacturer is in charge of producing them, they should also
be liable for product defects and the costs to send new products to the customers. You are in charge of the
product design but the actual engineering and manufacturing of the product is left up to the manufacturing
company.
Third-party manufacturing had its benefits, but it also comes with its fairs and flaws as well. The
industry you work in will provide you with the benefits or challenges. If your customer are seeking quality
customer service and they call your hotline only to have a frustrating experience due to language barrirers,
you will suffer from customer fallout.
Just because third party services can provide you with something for cheaper doesn't mean they are
necessarily better. If your customers are taking the brunt of your monry-saving strategy, they are not going to
be satisfied which will in turn leave you unsatisfied and potentially out of business.
Third party manufacturing is a great way to cut costs and to reduce the burden on your company.
The other nice thing about third-party is the networking possibilities. When you are working with multiple
comapanies to produce your products, you will gain exposure to a new auduience and potential customers
base in the maufacturing industry. Word of mouth marketing is a new great way to let people know about
your business and you can use your new contacts in the manufacturing industry to meet new customers and
generate more clients. Whenever you are thinking about expanding or you are dealing with an influx of
orders, third-party manufacturing is definitely the way to go. The providers will eliminate the stress you may
be feeling and they will make it easier for your company to produce a products it needs in a timely and
efficient manner.
Not only can you find third-party companies to produce and ship out products for you, they are also
available in the form of third-party companies to produce and ship out products for you, they are also
available in the form of third-party resellers. These companies can also reduce the burden you may feel to
boost your sales numbers as they will order a set number of products and focus on selling them. Your
commission rate will not be as high as they could if you were to sell them on your own But you still earn a
nice consistent contract for your business.
The nice thing about resellers is how much control you have with the.. Unlike the third-party
manufacturing plants, you can actually provide specific rules for how they can go about selling the products.
This allows each customers to have the same interaction with your company even if these individuals are not
actually hired by the company. If you want to save money and boost production, third-party manufacturing is
the way to go.

4.2 How to outsource your manufacturing and cut costs

In today's economy, most of businesses are looking for different ways to cut down on their overall
costs; this is specially true for manufacturers. Cutting down on overall costs simply means you are saving
money, and increasing profitability. The bottom line is that
Saving money in a bad economy can sometimes mean the difference between staying in business, and
having your business fail. With manufacturing businesses, one of their biggest cost is the manufaturing of all
their products in their location. Many manufacturers find that they can save considerable cash by
outsourcing a portion of their priducts. Toady many manufacturers are choosing to outsource their
manufactures overseas. Here is what you need to know about how to outsource a manufacturing and cut
costs.

4.3 Determine if outsourcing will be good for your company

You will need to look closely at your manufacturing process to see if outsourcing some of your
products, is going to be profitable. It is important to keep in mind that not all businesses, can save money by
outsourcing manufacturing. There are many reasons for this such as it can be to hard to get the materials
needed in another location or because there are methods you can enact to save money. You will also need to
determine how much it is going yo cost to manufacture the products some where else and then have it
shipped to your location, to figureout you will be benefiting from it or not.

4.4 Determine exactly what products you will want to outsource

You will need to go through various products that your business manufactures to see exactly which
ones would save you the most money, having them outsourced. Many manufacturers choose to the beginning
to have one product outsourced and the see if it will work for their business. Remember that in order to
determine if outsourcing a product is going to be beneficial you will need to examinr your manufacturing
processes.

4.5 Determine whicy process will be used

You will need to research the process that is involved in outsourcing your manufacturing. You will
have to understand exactly what is specifically involved in the process and what us going to be required for
your business, in order to outsource a specific product or just a part of a product. Keep in mind that if you
are only going to be outsourcing a portion of a product, thr rules are going to be bit different, then if you are
outsourced the entire product. At this point, you will also need to find out the best place to outsource your
product to, such as if it is cheaper to go overseas or to stay local.

4.6 Outsourcing Manufacturing- Pros and cons

If you are in the manufacturing business, then the word "outsourcing" is extremely familiar to you,
ad it becomes part of the industry. For others it may be somewhat foreign term so let's begin by explain what
it means to "outsource"
Outsourcing is contracting with another company or person to do a particular job or function for
you. It is not unusual for companies to outsource regularly. Generally speaking the outsource "service" that
is provided to the company is usually done by the third party provider; a person, or a group that is not
associated with the business anyway. Outsourcing can help companies be more efficient and cost effective.
Outsourcing usually encompasses four stages:
1. Strategic thinking
2. Evaluation and selection
3. Contract development
4. Outsourcing management

Outsourcing also depends in three main factors to be successfull. Executive level supports in cleint
organisation, communication, efforts from management to employees, and the clients ability to manage its
providers. It becomes even trickier when the comapanies take the outsourcing to other foreign countries
because of launguage barriers, and cultural and time zone differences. With all that in mind and a little more
knowledge in outsourcing, lets take a look at the pros and cons of outsourcing.

4.6.1 Pros of Outsourcing in Manufacturing

Specializing in what they do best is the great benefit of outsourcing. Any smart business will hire
independent consultant or outsource critical functions within their business.
Business owners cannot do everything all at once and become very ineffective which is why
outsourcing can be huge advantage to them. Outsourcing can allow business owners the freedom to focus on
what they need to in order to keep their business running smoothly.This is extremely important in large
manufacturing plants who wants to increase the quality of their products.
Outsourcing allows you to hire the right person for the right job and may give you some new ideas
into your business as it presents an unbiased perspective.
Every manufacturing business is looking to decrease their cost which is exactly what outsourcing
can do for you. When you hire only what you need, you pay for only what you need.
Outsourcing can also give you a small advantage when trying to win customers, and other projects
bids. If you have "specialist" within your company that can increase quality and cost who wouldn't want to
have you on their team.
4.6.2 Cons of Outsourcing in Manufacturing
Upsetting employees may be one of the major disadvantages to outsourcing sometime employees
feel less important and the quality of work can suffer.
You could lose money on your outsourcing investment. Every business investment has some risk and
there is no guarantee that outsourcing is going to produce the quality you Want, and could end up costing
more money because of labour.
Although some may agree that outsourcing can give you an edge over other companies others might
argue that it takes away your competitive edge.

Often times with outsourcing there are conflicts of interest and issue with confidentiality. It is always a good
idea to have confidentiality agreements to steer clear of this problem.
The decision is ultimately yours when it comes to outsourcing your manufacturing plant. Knowing all the
information is the best way to begin way to begin the process.

3.9 HOW TO OUTSOURCE YOUR MANUFACTURING PROCESS

Because of the high cost of doing business in the United States many companies are outsourcing more and
more of their business to other countries. The reason for this is that in other countries the cost of living is less
which means wages are less and many times the prices of materials are a lot less. All of the reductions in
costs leads to reduction in the price of product. This is great for companies because the lower the cost of
goods the more of a profit the company will make on their finished products.
While the lower cost is a huge factor in outsourcing that is not the only reason that companies outsource.
Companies also outsource parts of their business because they do not have the capabilities of doing that part
of business themselves, such as payroll. But yet another reason that companies outsource is because they
cannot meet the demand for the product by themselves and in order to keep up with the demand they need to
make more of product.
3.10 HERE ARE SOME STEPS YOU SHOUULD FOLLOW TO OUTSOURCE YOUR
MANUFACTURING PROCESS:
1. Step one
The first you need to do is determine if outsourcing your manufacturing process is going to be
beneficial for your company. Will outsourcing help you cut cost and raise profits or will outsourcing help
you lower the total cost of your product so more people can buy it.

2. Step two
Now that you have decided that outsourcing is right for your company you are going to need to decide what
you are going to want to outsource. Do you want to outsource ll of your manufacturing or just part of it?
Take a look at your manufacturing process to see which way will be the best for your company.
3. Step three
Now you are going to have to do some research on outsourcing. Doing this research you are going to have
to see what place is the best place to outsource to. Part of this will depend on what type of product you are
manufacturing. Some jobs can be outsourced locally while other jobs are best outsourced overseas.

4. Step four
Now you can contact some companies that specialize in outsourcing manufacturing to other companies or
you can locate the companies yourself to see what they have to offer. In the agreement you are going to want
to make the terms and conditions clear so that you both now what to expect.
5.PROCESS AND ACTIVITIES IN BANKING AND FINANCIAL SECTOR
5.1 Process-specific outsourcing trends that will drive growth in banking and financial
sector:-
1. Mortgage market
This will be an area of intense outsourcing focus over the next couple of years, with mortgage volumes
continuing to rise because of HARP (Home Affordable Refinance Program) and HARP II.
Many mortgage companies liquidated assets during the financial crisis; they terminated leases on space and
eliminated staff. The market has since seen a huge spike resulting in the HARP --related originations for
refinancing. Buyers are thinking about ways to handle the new volume while hedging against future volumes
vulnerability. The ability to support certain business activities from domestic markets will also be an
important differentiator, especially to remain onshore.
The secure and Fair Enforcement (SAFE) act requires standards and licensing at a state level for mortgage
loan originators. SAFE also mandates that many originations elements need to remain onshore.

2. Credit card business.

These activities remain a hot area for outsourcing because of scale (especially in Customer service) and
many of the card processes are standard. What is becoming a key provider differentiator is location the
ability to offer clients location in North America and to support language requirements around the world.
Canada has therefore become a very popular location for credit and processing. According to numerous
studies, Toronto is the most culturally diverse city in the world, Followed closely by new York, fraud is
another significance area of interest, driven by providers’ ability to support related processes with new and
better technology. US based providers are making a strong play in this market.

3.Commercial lending
An emerging area in the outsourcing business , commercial lending had long Been considered too complex
to outsource , falling into the KPO category . Two Development are now making it possible to look at
outsourcing commercial lending . First , the number of experienced individuals in India in this line of
business has grown substantially in recent years .Second , more providers are offering hybrid models , with
domestic US teams working jointly with offshore teams to bring business acumen to the program . the
effectiveness levels have grown as result , creating options for buyers.
4.Mobile Banking
Mobile banking is a primary tool financial institutions use to interact with different customer groups .
Outsourcing opportunities will begin with the platforms , then move into service support and analytics .
Finally , there will be in increase in support required by either the buyer or provider for the new areas to
ensure that they are meeting all regulatory requirements for these emerging areas.
5. Payments
 As the new product enter into the market others are declining in volume. Take check payments . They
continue to drop every year but will not disappears completely for many more years , creating a big
opportunity for strong aggregation play . Financial institution is reluctant to invest in new technology or
talent development in a declining area that is nevertheless a core business process requiring substantial
technology and labor . For providers to aggregate these volumes from multiple customers , payment
processing is a long term cash cow. At The Knowledge Community for Global Business & I T Services the
same time , providers to would be wise to look at the electronic payments to understand the future of
payments and support critical relation exception handling and reporting
6.Risk and compliance:
Reluctant to outsource this area before the recession , most financial services companies have seen this
operations double in size , and half the new regulations have yet to be implemented . these is a labor
shortage in experienced risk analysts in the United States , and technology has not yet been adapted to the
new risk- related requirements. Because of this , expect to see more work around reporting area
outsourced . US- based providers and some private- label players will have a significant competitive
advantage with their ability to leverage an extensive domestic presence and experience . Much risk and
compliance work would fit well in offshore model . The challenge is to identify what regulators will allow
offshore and to secure enough Experienced resources to support the work.

5.2 Risk arising out of Outsourcing :-

Outsourcing of financial services expose a bank to a number of risks which need to be evaluated and
effectively managed & mitigated . The key risks that may arise due to outsourcing are:-

Strategic Risks
The service provider may conduct business on its behalf , which is inconsistent with the overall
strategic goals of the bank.

Reputation Risks
Poor service from service provider , its customer interaction may not be consistent with the overall standards
of the bank.

Compliance Risk
Privacy , consumer and prudential laws may not be adequately complied with by the service provider.

Operational Risk
Arising due to technology failure , fraud , error , inadequate financial capacity of service provider to fulfill
obligations and /or provide remedies.

Legal Risk
Includes, but is not limited to , exposure to fines , penalties or punitive damages resulting from supervisory
actions , as well as private settlements due to omissions and commissions of the service provide.

Exit Strategy Risk-

This could arise from over-reliance on one firm , the loss of relevant skills in the bank itself preventing it
from bringing the activity back in-house and contracts entered into wherein speedy exits would be
prohibitively expensive.
Counter party risk-
Due to inappropriate underwriting or credit assessments.

Country Risk –
Due to political , social or legal climate of country where the service provider is located.

Contractual Risk-
This risk arise from inability or degree of the ability of the bank to enforce the contract with the service
provider. Concentration and Systemic Risk – Due to lack of control in the bank over service provider , more
so when overall banking industry has considerable exposure to one service provider . The failure of the
service provider providing the desired services covered by the terms of agreement or any non compliance of
any legal/ regulatory requirements by the service provider can lead to reputational or financial loss for the
bank which can be trigger a systematic risk in the banking system as such.
The imperative therefore will be securing effective management by the bank for the mitigation of this
risk.

Access risk-
Outsourcing arrangement hinders ability of regulated entity to provide timely data and other information to
regulators . Additional layer of difficulty in regulator activities of the outsource provide.
Systemic Risk-
Overall industry has significant exposure to outsource provider. This concentration risk has number of
facets , including:
Lack of control of individual firms over provider;
Systemic risk to industry as a whole.

5.3 Outsourcing Solutions for Banking & Finance Industry

Our secure and accurate solutions for clients such as lending firms and investment banks include:
Providing advanced software applications
Maximizing the productivity of internal processes
Reducing the risks related to banking and financing
Ensuring back-end support for new acquisitions
Profit-driven initiatives to improve scope of business
Implementing effective strategies in a competitive market place
Regulating services with latest computing aids for business continuity
Reflecting technological standards in the field of banking and insurance

Valuable outsourcing Services

HI-Tech Export (HTE) increases the value of financial activities carried out in the retail banking sector
with features such as:
Increasing the operational efficiencies of financial institutions
Establishing proven methodologies for transforming business process
Remaining in compliance with the banking sector reforms the best quality
Depicting international standards even while concentrating on local businesses
Providing maximum customer s as well as technical support reflecting timely needs
Assisting clients whenever there is a need of more sophistication in banking sector
Creating maximum scope for business enrichment with latest computer software

We are known for delivering global business solution whenever our customers require them the
most . Having several years of experience in churning out strategies , we show the right path for
companies in achieving the desired targets in accordance with the banking and financial sectors .

Our list of clients include Fortune 500 companies that are known for bringing in phenomenal
changes in the way banking transactions are carried out in any situation. At THE, our experts are
known for facilitating workflow according to the latest business requirements in fields of banking
, insurance and investments.

Benefits
We provide the below mentioned benefits satisfying all the norms related to banking and finance;
Creating efficient strategies for clients dealing with investment banking
Providing cost-effective solutions that can be considered under any given situations
Offering round-the-clock assistance as part of resolving the issues related to banking
Making best use of available expertise to offer solutions related to financial issues
Enhancing the scope of clients in dealing with asset management aspects
Complete outsourcing services for various needs such as offshore banking

5.4 Outsourcing of Accounting & Bookkeeping Banking Services:-

Bookkeeping is a tedious but a necessary process with any company or financial institution . maintain
accounts of financial transactions can put huge burden on your operating and administrative costs especially
if the volume of transaction is high. Outsourcing has come as a breather to banks-cutting down operational
costs and saving time that can be invested in strategic functions.

5.5 Bookkeeping processes at Outsource to India

Based on nature of a bookkeeping project and your preference you can choose from among three
processes that we employ for our banking services:

Server Based Bookkeeping

In this process you can scan and upload your documents to a secure FTP server. Once this is
done we will downloads , update your books and then re-upload them back to the server. You
can also e-mail us the documents which upon updating can be either e-mailed back to you or
uploaded to a FTP server.

Remote access bookkeeping

 You can also grant us remote access or VPN(Virtual private network ) access to your
computer or to a server that you choose . We can work directly on your machines directly on
your machines without you worrying about the security of the data.

Application Service Provider (ASP) Bookkeeping

If you use an online accounting software service such as Quick Books online.com, then either
you can e-mail or upload the documents that need to be updated. We will login through to the
online accounting software and update the books . Once completed , we will contact you and
you can login to the application to check the status.

5.6 Can banks outsource bookkeeping services?

Banks, unlike other organization , need to be engage in daily bookkeeping tasks because of nature of their
operations . This poses a greater risk and challenge in having accurate records of your accounts . Even a
slight error in the books might result in disastrous consequences.

Outsource to India’s bookkeeping services for the banking industry

. Outsource2india can handle the entire gamut of bookkeeping and accounting activities that banks have
to deal with .These cover
Daily ledger and journal entries
Maintenance of Accounts Receivables and Accounts payables
Preparing and updating Profit and Loss ( P&L) Statements
Preparation of Balance Sheets and Income Statements
Updating Bank reconciliation Statements
Ageing Reports and Summaries
Preparation of tax Statements
Maintenance of Assets and Liabilities books
Generating quarterly , monthly and yearly Cash Flow Statements
. We use the latest accounting software tools such as:
Quick books
Peachtree
Quicken
Creative Solutions Accounting
Master Builder
Microsoft Dynamics
Oracle Financials 11

.
5.7 Why should your bank outsource bookkeeping

Additional banking services by Outsource to India

Apart from bookkeeping services, we also provide a range of banking services covering specific business
area like:
Credit card and loan processing
Payroll processing
Mortgage processing
Securities processing
Check collections
Accounts analysis
Check imaging and conversion
Payment verification
Financial Analysis
Tax preparation

5.8 Outsource to India – your bookkeeping services and banking services

partner
Outsource to understands that your needs are unique and immediate. We have always emphasized on
understanding your business objective as much as your project requirements. This has allowed us to build
long standing relationship with our customers. Some more reasons why we can be your partner in
bookkeeping services & financial services:
Faster closure of books every time – means you can invest this time in strategic tasks such as growing
customers relationships
Specific operational focus on US based banking and financial institutions
We are proficient with the bookkeeping standards of different countries and can meet your exact needs
We can offer other lateral financial services-you can save on finding multiple vendors if you decide to
outsource more than one service
Our banking services support team is made up of highly skilled professionals with experience in handling
bookkeeping for banks
Open and short channels of communication- lets you to quickly and clearly exchange information among
people involved in a project
Reduced operating and administrative costs.

5.9 What is the role of Banking BPO in India?

Answering the needs of time , companies in India are providing many BPO banking services. Their
main focus is on speed of implementation and process advancement with quality control . Banking BPO in
India is providing various services like loan mortgage , Consumer finance and financial market and credit
cards . Banking is no more than just a place for financial transaction but involves many vertical functions of
Banking BPO in India.
The major solution Banking BPO in India provides is as Follows:
Recording
Client Verification
Paying off Loans
Collections
Telemarketing service
Processing addresses
Request customers Services
Resolving queries
Responding to client via email or chat

The major challenges faced by Banking BPO in India Companies are as follows:
Apparent lack of management
Service agreement disagreement
Efficient management
Risk Management
Privacy ownership of client
Incorporation of outsourced processes with business processes
Effectual Control
Mortgage Lending

6. ACTIVITIES OUTSOURCED BY BANK

Presently the following services activities have been outsources by the bank
Credit card acquisition issuance and the reconciliation
The bank has an agreement with Venture Info Tech Global Pvt . LTD . Mumbai now M/S ATOS
world line. The outsourced activities debit card , credit card insurance management functions and
merchant acquiring point of sale management functions . The concerned department monitoring and
managing outsource business process in our card section.

Engagement of business correspondence for financial inclusion

For implementation of financial inclusion plan for 1260 unbanked villages approved by the
B.O.D’s on 28th February 2011 through B.C model engaging VLE’s as CCS’s as BC’s .

Engagement of FINO for transaction management for smart cards

The services covered are creations of Smart Cards , supply of POT machines maintain transactions
generated through the operations of the smart cards at the FINO server and then redirecting these
 transaction to technical support team of FID for upload on Finacle .The bank has an agreement
with FINO for the above service functions . The concerned Department monitoring and managing
outsourced function B&C is our Financial Inclusion Department.

Asset management & Salvage Solutions (ATMA)

The bank has an agreement with M/S Asset Management & salvage Solutions (ATMA)
For recovery and resolution of NPA and stressed assts for the State of Jammu and Kashmir. Asset
Monitoring and Information Department (AMID) is monitoring and managing this business process.

7. HUMAN RESOURCE OUTSOURCING

7.1 Managerial Motivations Behind outsourcing Practices In Human Resource
Management In The Indian Banking Sector:-

Banks play a crucial role in economic development of a country. The banking sector in India is
dominated by state controlled public sector banks . With no threat and no external competition , these banks
thrived in tightly controlled economy concentrated in state’s agenda of social-banking and financing to
industrial sector . On the after math of balance of payment crisis , the Govt . of India initiated financial
sector reforms in the year 1991 and this paved the way for opening tech –savvy new generation banks like
ICICI bank , HDFC bank , AXIS bank ,YES bank , etc. These banks are customer centric approach and
innovative product offering attached the customers in the urban areas , particularly youth and thus posted a
threat to the old age public sector banks.
Pressed with increased competition from new private sector banks, challenges faced due to large scale
adoption of technology , compulsions of meeting regulatory requirements basing on the recommendation of
“Basel Committee” , compelled the PSBs to look for external sources. Banks expected outsourcing would
help them focus on their “core-competencies” rather than concentrating on energies on non-core activities,
help them getting new technology and reduce the cost of operations . The expected cost saving as because of
suppliers’ low cost infrastructure, which could be possible due to their expertise in the respective fields and
economies of scale.
In the pre-reform period Indian banks mostly gave emphasis on deposit mobilization, customer
service and credit creation. But in the post-reforms period , stiff competition is made the bank management
feel concerned about the parameters like employee productivity, profitability , share holders ‘ value and so
on. Deregulation, economic reforms and large scale technology adoption bought in competitions in the
banking sector and at the same time exposed the inherent weakness of the age- old public sector banks and
threatened their monopoly . Majority of the public sector banks were comfortable with old manual banking
and were reluctant to adapt to the new age technology banking . The voluntary retirement scheme
introduced in the banks in the year 2001 was aimed at reducing the internal staff and hire young work force
who could quickly deliver modern banking services at the counters. The pressure of bank manager was to
increase the efficiency and productivity of the employees . According to Khandelwal(2005), the then CMD
of Bank of Baroda , banking has changed drastically during the post reforms period and it is extremely important
that employees upgrade their skill set to cop with the change in technology , expectations of customers and
competition from peers.

1.Cost savings;
Cost saving is one of the key drivers for HR outsourcing in organizations. Outsourcing
 enables firms to reduce future costs by selecting the right vendors through process of
competitive bidding. Intense competitions has lead to HR heads to find ways to provide more
value at lower cost increase return on Investment (ROI) . HR outsourcing provides forms with
greater flexibility and increases productivity by using third party service provides fluctuating
demands for labor.
Damodar and Satish (2009) conducted studies on outsourcing in the auto motive
parts manufacturing industry in the states of Michigan and the Ontario Provinces of Canada .
They found that those firms outsourced their HR activities were financially stronger and had
higher employee than those that did not outsource.

2. Access to Technology:
Cutting edge technology and knowledge /skill are now-a-days recognized as competitive
weapons. But unfortunately these are expensive to acquire and at the same time successful
results are often elusive when implemented internally. Therefore , gaining specialized HR
expertise , achieving flexibility and reducing risks are the main motive factors for the
managers to go for HR outsourcing.

3.Streamling HR functions:
Managers give stress on streamlining their HR functions and therefore they are motivated to
go for HR outsourcing . The outsourcing service provider acts as an expert consultant and
helps in streamlining internal processes, increasing productivity and training in- house HR
staff.

Allow HR staffs focus on Strategic Functions:

Outsourcing is not just about cost-cutting or re-engineering, rather its about redesigning
organizational process and change in work culture so as to full fill the strategic mission of
organization..It is found that many organizations internal employees are very often brought
down with normal routine works and get less time to engage themselves in consultative
activities .Companies outsourcing HR functions have greater flexibility and they can free
their internal staff from routine International Journal of Research in Management ,
Economics and Commerce functions and engage them in strategic roles Jennings, 1996.

Focus on core:
Organizations like to focus on their core activities since this activities creates unique value for
employees, customers and investors . Therefore , managers prefer to outsource non core
activities so that their internal employees can focus on their core functions. A study by
Kinange and Murugaiah (2009) on HR outsourcing by IT companies in the States of
KARNATAKA reveals the organization always try retain their core HR functions like soft
skills , behavior training , high value decisions, strategic functions , culture building ,
organizational design , framing business rules etc. with their internal HR department and
engage third party service providers for non-core activities, According to Hesketh (2005) ,
organizational should focus on core and outsource the rest.
Overall impact on the organization:
HR outsourcing aims at both operational and strategic contributor to the organization’s goals .
Kakabadse and Kakabadse (2002)studied outsourcing activities of 747 European
organization and found that outsourcing in any form affected the human resource
management in the organizations . Study by Brown Peter (2010 ) reveals that the benefits of
outsourcing are not limited to cost saving, rather it has far reaching effect on the
organizations’ employees . Study by Ale well , et al .20090 on HR outsourcing decisions of
Germany firms shows that firms never explicitly consider outsourcing of HR functions. They
Initially outsource limited HR functions like recruitment and pay roll preparation , and later
on stretched it to all complex transactions and every aspect of HR services(Saini and Khan
(2000).

Study of literature reveals that both strategic and operational factors influence HR
outsourcing decisions of companies . In particular , demand for cost savings, focus on core
activities , higher productivity , profitability and gaining access to leading-edge technology,
etc . have put pressure on Hr Managers to demonstrate efficiency and effectiveness of HR
functioning , as a result , senior management of companies developed interests for strategic
outsourcing.
However , there is hardly any study to know the factors influencing outsourcing of
Human Resource Management functions in the banking sector. The present study is an
earnest attempt in that direction.
 8.RBI GUIDELINES

RBI issues outsourcing guidelines for NBFCs

Given that Non-Banking Financial Companies (NBFCs) extensively outsource some of their operations, the
Reserve Bank of India on Friday issued draft guidelines on managing risks and code of conduct in
outsourcing of financial services by them.

The RBI said an NBFC intending to outsource any of its financial activities should put in place a
comprehensive outsourcing policy, approved by its Board.

The policy should incorporate, criteria for selection of such activities as well as service providers, delegation
of authority depending on risks and materiality and systems to monitor and review the operations of these
activities.

Typically outsourced financial services include applications processing (loan origination, credit card),
document processing, marketing and research, supervision of loans, data processing and back office related
activities, besides others.

In the draft guidelines, the RBI said NBFCs should not outsource core management functions including
internal audit, compliance function and decision-making functions like determining compliance with KYC
(know-your-customer) norms for opening deposit accounts, according sanction for loans and management of
investment portfolio.

Moreover, service providers should not be located outside India. NBFCs should retain ultimate control of the
outsourced activity.

NBFCs would be responsible for the actions of their service provider including Direct Sales Agents / Direct
Marketing Agents and recovery agents and the confidentiality of information pertaining to the customers that
is available with the service provider.

Outsourcing arrangements should not affect the rights of a customer against the NBFC, including the ability
of the customer to obtain redress as applicable under relevant laws.

Guard against risks

The NBFCs should evaluate and guard against the risks – strategic, reputation, compliance, operational,
legal, exit strategy, counter party, country, contractual, access, concentration and systemic – in outsourcing.

The RBI said outsourcing of any activity by NBFC does not diminish its obligations, and those of its Board
and senior management, who have the ultimate responsibility for the outsourced activity.

CHAPTER 6
CASE STUDY
INDUSLND BANK:-
What procedures you have Outsource?
INDUSLND bank gives the outsourcing agreement to the knight frank outsourcing agency they provide
manpower to the INDUSLND bank in all department of the bank. E.g staff , housekeeping , security guard.

Is it cost effective?
Doing outsourcing is cost effective to the bank.

On what criteria do you select outsourcing agencies?

On the following criteria they select outsourcing agency:-
Should be registered under ‘ REGULATORY NO 19’
Provident Fund
Rating of the company in market
Certificate and licence

Does it improve corporate image?

Doing outsourcing its improve the corporate image of the bank.

Which all functions in your bank outsourced?

The following function outsource in the bank:-
ATM
Check clearing
Housekeeping etc.

What are the consequences that both the parties have to face if there is any negligence
in performance?
If any mistake do by agency the both the party have clear the problem and they have do not disclose any
mistake to client and to solve the problem. Suppose they change the agreement with agency .

Does it decrease or increase mistake?

Its decrease the mistake for doing outsourcing.

ICICI Bank:-

What procedure you have Outsource?

ICICI give the outsourcing agreement to the ICICI security and Sony outsourcing agency they provide
manpower to the bank of ICICI in all Branch.

Is it cost effective?
Yes , is it cost effective to doing outsource.

On what criteria do you select outsourcing agencies.

On the following criteria they select outsourcing agency:-
Should be registered under ‘REGULATORY NO 19’
PROVIDENT FUND
RATING OF THE COMPANY IN MARKET Certificate and licence

Does it improve corporate image?

Yes , for doing outsourcing it improve the corporate image of the bank.

Which function in your bank outsource?

The following function outsource in the bank:-
ATM
Check clearing
Housekeeping
Call center etc.

What are the consequences that both the parties have to face if there is any negligence
in performance?
If any mistake take place in outsourcing the bank and the agency work on the mistake and any
misunderstanding they don’t share the problem with client and they do not link their secrecy.

Does it decrease or increase mistake ?

Its decrease the mistake for doing outsourcing.
 CONCLUSION
In most theories about outsourcing and specially manufacturing outsourcing processes
The perspective has been focused on exploring certain issues emerging within the phases of the process. The
problem occurring in such approach is to choose between many different possible outcomes . In principle it
is possible to find a optimal solutions of this rather stationary problem .However a more fruit full and
practical y useful approach could be taken if we ask questions about the dynamics in the manufacturing
outsourcing process. What is important in such cases can be caught up the term learning .The idea is that the
manufacturing outsource decision makers will take into account results of former decisions in similar cases .
This creates a need to study the outsourcing process as an evolutionary process.
Manufacturing Outsourcing is often an attractive option , since it offers the availability of needed
resources without the need for new capital . Risk can also be shared with the outsourcer, and finance
flexibility gained via reduced debt levels . However , certain intangible costs , associated with political and
economical risks and supply chain management restrictions , should be seriously considered along with
developing markets , changing price structure , and level of expertise available worldwide . Outsourcing
arrangements are highly collaborative in nature . It is important that vendors and client work well together ,
communicate effectively , and continuously monitor and improve their processes. And border view with
general scheme of things in nature we should realize that just as everything has its pros and cones, the
manufacturing outsourcing too has its own . So we should see its all aspects before outsourcing
manufacturing.
 BIBLOGRAPHY

E-Text Books:-
‘ Business Process Outsourcing ‘ Andrea Jefferson.

Websites:-
www.outsources2india.com
www.qfinance.com
www.sourcingnotes.com

Magazines:-
Times of India
Economic times