IT costs have risen phenomenally in BFSI sector
Four CFOs from the BFSI sector discuss about variations in cost of technology during the pandemic:
The pandemic and the resulting lockdown along with practices like work from home have led to cost reduction in office administration but increase in costs of several other business operations. The adverse impact of the pandemic has impacted lives and livelihoods and unsettled the economy, even as the uncertain future has affected the market behavior and led to sluggish demand, which in turn unsettled the business-as-usual growth plans, especially in the financial services sector.
OPERATION & TRAVELING COST
Rent rates for commercial premises in general have come down as enterprises across the spectrum largely adopted WFH for their staff. For one of the severely affected sectors – hotels and restaurants – it will not be business as usual for a long time to come and even some of the 5-star restaurants are offering heavily discounted rates for their fare.
According to Miranjit Mukherjee, CFO, Future Generali India Life Insurance, the pandemic and the adoption of WFH have reduced the real estate costs. The restrictions on travel too have been a saving for the company. On the other hand, WFH has increased the use of communication channels and costs on this account have gone up manifold.
Neil Karia, CFO at Aviva India says: “We have been able to save the cost of electricity, water and housekeeping. More broadly, there are cost savings in other areas, where rental holidays for short periods have been offered by some landlords who have a collaborative and supportive approach in view of the circumstances.”
Raghuvir Gakhar, CEO at P.C. Financial Services, says hotel stay prices are heavily discounted due to the lockdowns, the general fear about infection and large scale cut on business travel.
As per S. Agarwal, CFO, Shriram Housing Finance, the cost of borrowings has come down significantly due to the continuous interventions by RBI, reducing
repo rates and making available abundant liquidity in the system. Reduction in traveling and conveyance, printing and stationery and electricity expenses all have helped to bring down the operational cost during the pandemic, he says adding: “Significant reduction in meeting and seminar expenses is happening at the same time, as these meetings and seminars are now being held online.”
TECHNOLOGY EXPENSES RISE
Aviva Life Insurance has a f ocused strategy for digital and social engagement. The insurance company witnessed an increase in IT administration costs. The adoption of technology and working from home practices have necessitated further investment in infrastructure to support its customers and people during these exceptional times. It faced a sudden rise in the demand for telecommuting services, creating an immediate need for video conferencing, mobile network equipment, VPNs and cloud telephony.
Neil shares the company’s strategy: “There has been an increase in our ongoing people costs in line with our strategy to invest in our people for market growth. Naturally, the cost of ensuring safety of the staff has increased, be it for sterilization or fumigation, or other related activities.
He adds: “We have created an Aviva War Room - a group of 50 volunteers who track the leads for medical supplies in real-time, verify them and answer distress calls. All these have a cost aspect and we have seen an increase in costs incurred by the company.”
Intense competition in the market to grow the book has led to a reduction in
lending rates. BFSI companies have done additional investments in technology/ digital innovation, whose impact will be seen in the long run. Agarwal says covid has adversely impacted the cash flows of our customers due to which repayment capabilities have been temporarily affected. This means we have to create additional provision. Because of the availability of additional liquidity buffer to cater any contingencies, the company has to incur higher negative yield on liquidity, he adds.
INSURANCE, OTHER COSTS
Cost of medical i nsurance and term insurance has become exorbitant during the pandemic. Miranjit shares details: “Since we are in the insurance business, reinsurance costs have shot up owing to the adverse claims experience of the reinsurers. With work from home being the norm, employees had to be equipped with the tools leading to high capital expenditure, IT costs, and consequent depreciation.”
Prices of electronic parts have shot up mostly due to the global chip shortage and more demand for computer systems on account of more people getting into WFH procedure. This has affected everything from the service to the manufacturing industry since everything from a phone to a car needs these chips. Raghuvir provides the details of the additional costs: “Fuel prices have reached astounding levels mostly due to funding of welfare programs and government need for taxes due to lower collections because of covid. There is also increase in price of home furnishings, due to WFH.”