This report is an analysis of National Savings Banks of Sri Lanka about how information systems are being used to achieve competitive advantage.

1. How Information Systems are being used
to achieve competitive advantage?
University of Colombo School of Computing
How Information Systems are being used
to achieve competitive advantage?
Prepared by:
Waruna Kodituwakku
University of Colombo School of Computing
How Information Systems are being used
to achieve competitive advantage?
University of Colombo School of Computing

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1. Introduction
The National Savings Bank (NSB) was established by an Act of Parliament in 1972 by
amalgamating three institutions namely; the Ceylon Savings Bank (established in 1842), the
Ceylon Post Office Savings Bank (established in 1885), and the National Savings Movement
(established in 1942). (1)
The NSB is fully owned by the Government of Sri Lanka. NSB Fund
Management Co. Ltd established in 2000 is a 100% subsidiary of NSB. (2)
The objective of NSB is to promote savings among the people of Sri Lanka with special
emphasis on the less affluent people. For this purpose, NSB has a wide network of branches,
postal banking branches, and school banking units in addition to a unique system of 4055 agents
in the form of post offices and sub post offices. The savings thus mobilized would be used to
make profitable investments. The vision of NSB is to provide financial services to all the Sri
Lankans. (3)
2. Installation of information systems
The need for automation of information systems was to better serve its customers. On one hand
the transaction costs had to be managed in the face of ever growing numbers of branches,
customers and deposits. Accuracy of information was also crucial. On the other hand, customer
services had to be in line with the competitors in the banking industry. In the 90s, all local banks
were embracing the benefits of ICT, and NSB could not refuse the temptation. (4)
NSB commenced the automation of its information systems in the 1990s and most of them were
in place by 2000. Many were developed in-house. Therefore these solutions fit into the
requirements of the bank and its customers. It has also given greater flexibility and room for
innovation at a comparatively lesser cost. Above all, it has avoided the dependence on external
software experts. (5)
Currently, IT applications are being used in accounting, customer services (loans, deposits etc.),
asset & liability Management, and risk management. All the branches and most of the post office
savings operations have been networked, while sub-post offices are also being networked. 148
ATMs have been installed. In addition, NSB’s web portal (http://www.nsb.lk) provides
24hour/365day access.

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3. Benefits of information systems and how competitive advantage was
achieved with information systems
3.1 Customer Service:
During the era of manual accounting, the interest on customers’ accounts were computed
monthly on the lowest balance during the month and credited to the accounts monthly. It was
impossible to compute interest on the daily balances due to the hugeness of the work involved.
This system was disadvantageous for the customers, but it was inevitable in manual accounting.
As a result of the introduction of automated accounting systems, NSB is able to compute interest
on daily balances of the accounts. This is fair by both parties, and hence customers are not
deprived of their due interest. (4)
Previously, a customer was confined to the Branch that he opened his account with. He could not
deposit or withdraw money from other branches. The NSB information systems have provided
two solutions for this problem. The first is that all the NSB branches have now been connected
via a network. As a result of the network system, a customer can go to any NSB branch and
perform the normal banking transactions. The second solution is the installation of ATMs. A
customer can perform many transactions from any of the ATMs, in any location.
Customer service was also limited by the “banking hours” previously. Even urgent banking
transactions were impossible after banking hours or during the weekends. For this problem too
NSB has offered three solutions; ATMs, Internet and the unique “Point Of Sale” system
(customers can deposit cash from their business place). (5)
They provide 24hour/365 day service.
Now customers do not have to visit a branch for most of the transactions.
3.2 Product Differentiation
With the help of the information systems, NSB has been able to design and offer many new
products to the customers. Ridhee Rekha, NSB Debit Card with Master facility, NSB Easy Card,
and Point of Sale (POS) system are a few examples. (6)
Under the “Ridhee Rekha” lottery system,
the customer can deposit any amount of money in multiples of ten rupees. The draw is based on
those ten rupee multiples. A customer who has more deposits gets a higher number of chances in
the monthly draw. This fair and equitable system induces the customers to deposit more. It has
been facilitated by the information system. NSB’s Point Of Sale (POS) software has won a gold
award too. (7)

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3.3 Customer Loyalty
The customer loyalty is achieved through improved customer services in relation to the
competitors and the trust that NSB has won due to its stability and strength. How customer
services were improved with the help of information systems were discussed above. Information
systems have helped to build the trust too, by providing accurate and timely information to the
public and to the Central Bank. NSB has received AAA ratings for seven consecutive years. (5)
Customers’ loyalty to NSB is displayed by the ever increasing number of account holders. Ten
years ago, NSB had 12.9 million account holders which were nearly 68 % of the population of
Sri Lanka. As at end 2009, the comparable figure was 16.3 million account holders which equals
to 78% of the population. The rate of growth of account holders (2.63% p.a.) exceeds that of the
population. For every 4 Sri Lankans, 3 are account holders of NSB!!! (8)
3.4 Cost savings
The information systems have helped NSB to save staff costs. For example, in 2000, NSB had
12.9 million account holders, indicating an average of 4705 per staff officer. By end of 2009, the
respective figures were 16.3 million and 5592. During the 2000-09 decade, the number of
account holders has increased by 26% while the number of staff has increased only by 6.3%.
This shows that the staff is able to handle more work now, due to the help from information
systems. The deposits per employee which were Rs. 38.3 mn in 2000, has increased to Rs. 107.4
mn. by end 2009. (9)
3.5 Focus
Before the information systems were automated, consolidation of the branch accounts was a very
tedious task which required a huge volume of man power. The possibility of errors was also
high. As a result, the Accounts and MIS departments were very often behind the schedules. As a
result of the introduction of automated information systems, both the accuracy and the timeliness
of information have improved considerably. (4)
4. Conclusion
The above facts display that NSB has gained and developed two competitive advantages over its
competitors. The first is customers’ loyalty. NSB’s market share is 20% in deposits and in terms
of customer reach it is the first. The second is a cost advantage. The Cost: Income ratio of 39%
(10)
is lower than that in many other local banks. It indicates the productivity improvement and
the cost advantage of NSB gained through information systems.

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References:
1. p. 16, NSB Annual Report 2009
2. p. 30, NSB Annual Report 2009
3. pp. 16, 17, NSB Annual Report 2009
4. Interview with Mr. H A R Bandara, former AGM (Finance), NSB
5. p. 17, NSB Annual Report 2009
6. pp. 104,105, NSB Annual Report 2009
7. p19, NSB Annual Report 2009
8. p. 101, NSB Annual Report 2009, Central Bank Annual Report 2009 (Statistical Table 49)
9. p. 101, NSB Annual Report 2009
10. p. 24, NSB Annual Report 2009 (Cost: Income Ratio = Operating expenses excluding provisions
as a % of Total net income)