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Euro Zone takeaway for BFSI

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CIOL Bureau
New Update

BANGALORE, INDIA: A major share of Indian IT and BPO export revenues comes from BFSI clients in the US, UK and Europe. They include global banks with retail banking and investment banking businesses.

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Some of them also have their own captive units in India. They are experiencing turbulence (in the short term) and churn (in the long term). This is caused by multiple forces: Euro zone related deleveraging, regulatory overhaul, investigations related to scandals and global competition. Deleveraging refers to restructuring of the bank’s capital and asset portfolio.

Indian IT exporters need to understand reasons for turbulence or churn. Some of these could also be a sign of the change and transformation happening in the industry. They could affect future decision making on outsourcing.

In recent quarters, many European banks reported losses from investment banking. Royal Bank of Scotland (RBS) sold off entire business units. In the US, MF Global collapsed in 2011 and J P Morgan reported huge trading losses in 2012. Recent media reports highlighted multiple scandals related to leading banks. So far, we know about settlements made by Barclays, HSBC and Standard Chartered.

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Some turbulence or churn in BFSI could be happening in spite of the Euro zone crisis and not because of it. Investigations into money laundering and LIBOR were initiated after the 2008-2009 financial crisis. Changes to banking regulations are being introduced by multiple agencies across the US, UK and Europe since 2009. Losses reported by large banks in the US and Europe in every quarter relate to different reasons. It could even be due to bad risk management or impact of global competition. 

In the short term, the outcome of investigations and regulatory overhaul could impact decisions related to outsourcing. Some BFSI clients may prefer giving work to captive units instead of third party service providers.

Some banks could be forced to make large investments in risk management and regulatory compliance. This could imply additional oversight or controls related to IT projects. The mix of outsourcing between retail banking and investment banking businesses could change. Indian IT exporters need to get prepared for such changes.

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Europe’s problems can’t be solved by reducing interest rates or offering bail-out packages. European businesses need to improve their productivity and become more competitive. In 2012, Europeans are demanding country-specific solutions.

This applies to economics as well as banking products and services. Accordingly, BFSI clients will be affected by the Euro zone crisis in the next few years. Some “pan European” banking products or services may need to become country specific. Some of them may be forced to change their existing business model. If they don’t, they could lose market share to competitors elsewhere in the world.

Indian IT and BPO exporters need to adapt to a “new normal” especially in case of major BFSI clients. They need to support them during this period of change and transformation affecting the entire industry.

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(K R Kashyap is a Bangalore-based management consultant with 25 years of experience in Tata Unisys Ltd. (now part of TCS) and IBM)

(The views expressed by the author are his own and not of CIOL)

Earlier posts by K R Kashyap:

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Euro Zone, snakes and ladders



Euro Zone scenario and Y2K

Navigating a multi-speed Euro Zone

Euro Zone economy: Growth vs. austerity

Greece: The tip of the large iceberg



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