TCS, Infy bet on tech spend of US, European banks

Tata Consultancy Services (TCS) and Infosys are betting on new investments in information technology (IT) by US and European banks and financial institutions (FIs) to revive growth.

The IT majors say these entities' focus in recent years was to invest in technology for regulatory compliance. With the global changes in banking, traditional lenders and FIs would look at delivering technologyled banking, that would see new applications and delivery mechanisms. Indian IT expects a share of the pie.

“The sector was spending money on regulatory compliance, cost takeouts and shrinking the institutions for the past five-six years. They're now ready to grow (and) for that they need to introduce new services, digital channels, new insights. That means they are ready to invest in technology and I think that cycle is happening now,” N Chandrasekaran, chairmandesignate of Tata Sons, who was chief executive of TCS, said on revival for them in the BFSI (banking, financial services and insurance) sector.

In the September quarter, TCS saw a quarter-on-quarter decline in the segment. India’s largest IT services company’s business from BFSI customers has been flat at nearly 40 per cent of total revenue during the past three quarters.

Banks and insurance companies have reduced their discretionary spending that would result in IT projects for Indian companies after the Brexit move in Europe and the uncertainty of the US elections. This has also resulted in banks forcing pricing cuts for traditional IT services, while seeking more efficiency in their projects.

“Growth is expected from BFSI, as it is stabilising. There is a need for them to spend more on digital in terms of user experience and customer experience. But, I don’t think there will be a dramatic shift,” said Dinesh Goel, the India head at Information Service Group, an IT research entity.

Even if there is growth in IT spending by banks, he does not expect a similar trend among insurance companies in Europe or America.

A joint sector forecast by Deep Dive and Everest Group say for 20 IT companies tracked (including India-based providers and multinations IBM, Accenture, Capgemini, Atos, CGI, CSC), this segment grew 4.5 per cent, as against a sectorwide growth of 3.8 per cent during the past 12 months.

Even if the segment’s growth is expected to decelerate to 3.1 per cent over the next 12 months, the forecast says, this will be faster than that of overall industry, at 2.8 per cent. “For service providers to achieve growth, going deeper into the small or mid-market is likely to be critical, as growth slows in the larger financial institutions,” it says.

“We see the potential for a modest increase in IT spending as BSFI firms finish up their compliance activities and growing profitability frees resources for their digital initiatives. However, we see much of this increase impact on Indian service providers being offset by revenue compression emanating from automation, price decreases and the emerging doit-yourself movement,” said Peter Bendor-Samuel, chief executive officer of Everest Group.

Infosys seems to be banking on a similar growth story in this segment. The company said it saw improvement in BFSI revenue in OctoberDecember, despite the Royal Bank of Scotland ramp-down. Vishal Sikka, chief executive, said “the shift in spending in BFS” should “move from a more regulatory-orientated and cost-orientated approach than the prior times” in the North American market with President Trump coming in with an innovation-led approach, thereby driving banks to focus on investment in newer technologies.