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indian it: IT may get to buy tech captives of crisis-hit banking, financial firms


The banking crisis in the US and Europe could provide Indian IT firms with an opportunity to acquire captives technology units of banking and financial firms in a repeat of the 2008 financial crisis, analysts say.

IT companies such as TCS, Infosys, Wipro and Cognizant had acquired parts of the captive businesses of banks including Citi, ABN Amro and UBS after the 2008 crisis.

Similar opportunities are likely to come up in the second half of 2023-24, analysts told ET, though some others expect increased investments on captive units.

“We expect there could be some big captive buyouts where the big services firms leverage their relatively healthy balance sheets to push forward a big win,” said Elena Christopher, chief research officer at business research consultancy HfS Research.

Over the last few weeks, the US has witnessed its second and third largest banking failures in history, while Swiss bank UBS had to buy out a failing Credit Suisse in Europe for over $2 billion.

HfS Research expects Indian services to benefit as most of the banks have core modernisation investments to make to remain competitive as they recover from this situation. This is expected to put a stronger onus to move to an outsourcing model and away from global capability centres (GCCs) to handle operations and IT support.

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Kotak Securities in a report said higher focus on cost take-outs among banking and financial companies amid the ongoing crisis will generate opportunities in the form of application rationalisation, higher offshoring, captive carve-outs, enabling automation, and vendor consolidation, said a report by Kotak Securities.Following the financial crisis of 2008, TCS had acquired Citi’s India captive BPO unit for $505 million and Wipro acquired Citi’s IT arm for $127 million, along with their respective employee base. Both of these transactions helped the IT service providers onboard Citigroup as a strategic client.

Cognizant had acquired Indian captives of UBS for $75 million along with a 5-year $442-million service agreement from the bank.

Some of the new deals that come up due to the current banking crisis could also factor similar long-term partnerships with the providers, experts said.

The Credit Suisse-UBS merger especially is expected to result in additional synergies in this space.

“Credit Suisse has a captive operation in India. There could be some rationalisation emerging from the merger,” said Mrinal Rai, principal analyst at technology research and advisory firm ISG. “It is yet to be seen how the combined entity decides to plan its technology investment strategy,” he said.

According to the Kotak report, Credit Suisse and UBS have a combined technology spend of over $7 billion, which they will seek to reduce by eliminating redundancies.

“The company (UBS) indicated Swiss franc 2 billion (€2 billion) cost savings would be from the integration of IT systems,” the report said. “M&A of such scale provide significant opportunities for service providers to sign deals with long-term annuity revenue streams, while also consolidating out the long tail of vendors.”

GCC investments

Some experts believe the ongoing crisis will lead to an uptick in GCC investments in the country, arguing that the GCC ecosystem has evolved a lot from the 2008 crisis stage.

Lalit Ahuja, founder and CEO of GCC consulting firm ANSR, for example, expects global banks to invest more on captives rather than selling them.

“My take is completely the contrary,” he told ET. “Without divulging details, we are currently in conversations with seven new US banks that are in the process of setting up a GCC in India. The whole current SVB (Silicon Valley Bank) crisis has only strengthened their resolve from risk mitigation, controls, and accelerating digitisation perspectives.”

Even if an incumbent bank is looking at an opportunity to monetise or sell its GCC, the takeover is always in return for some business consideration like a multi-year forward looking business deal, Ahuja said.

“They don’t have a corresponding opportunity to give it to them in this economically uncertain environment,” he added.

While the current crisis is not expected to be as acute as the one earlier, experts supporting this view said India could see additional GCC investments as companies may seek to strengthen capabilities. The country already housing more than 175 GCCs of the banking, financial services and insurance (BFSI) sector that employ almost 300,000 people.

There could also be a few deals reduce costs, they added.


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