BFSI recovery partial as insourcing picks up

We have seen a modest improvement in the BFSI sector mostly coming from the large banks. Again, this is a bump-up from the bottom and does not look like, it has the potential to turn into strong growth. We have clearly seen the move to GCCs or captives taking some of the steam out of this recovery - Peter Bendor Samuel, CEO, Everest Group, tells Bizz Buzz

Roller-Coaster Impact

♦ Large FIs tend to develop critical tech through inhouse centres

♦ IT firms reported sequential growth in BFSI vertical in Q1/FY25

♦ Small &mid-tier FIs in the US still reeling under cost pressure

Bengaluru: Growth revival in the BFSI (banking, financial services & insurance) vertical of Indian IT services companies is likely to be bumpy despite showing green shoots in IT spending. According to analysts, the downturn in BFSI sector in the US has bottomed out, but current revival may not be strong enough for a full-fledged rebound. They also said that technology captives of large financial institutions are taking some of the fizz out of this recovery as new tech solutions are being developed in-house.

“We have seen a modest improvement in the BFSI sector mostly coming from the large banks. Again, this is a bump up from the bottom and does not look like, it has the potential to turn into strong growth. We have clearly seen the move to GCCs or captives taking some of the steam out of this recovery,” Peter Bendor Samuel, CEO of Everest Group, a global consultancy firm, told Bizz Buzz.

BFSI is a major revenue contributor to IT firms’ top lines with more than 30 per cent contribution. All large firms including TCS, Infosys, HCL Tech and Wipro have indicated that their financial services vertical have started to grow on the back of rising demand among US financial services providers.

Infosys’ financial services vertical returned to positive sequential growth after six quarters with 7.9 per cent growth in constant currency terms. TCS also saw sequential growth in its BFSI vertical. Wipro is another large IT services firm, which has seen growth recovery in its BFSI vertical. Especially, its financial consulting subsidiary, Capco has clocked top line growth for third consecutive quarter.

Not only large firms, but also mid-tier firms like Mphasis have predicted sound recovery in the financial services sector going ahead.

In a note, Mirae Asset Capital Markets said that large BFSI firms in the US have started investing in growth initiatives and technology.

“Except Citigroup, the technology spends by large US banks grew by 3.7-16.8 per cent YoY. The tech spending growth declined for Citigroup (down 3.7 per cent YoY) and moderated for JPM (7.9 per cent YoY versus 10.9 per cent YoY in March 2024), while it accelerated for Goldman Sachs, Bank of America, Wells Fargo and Morgan Stanley,” the report said.

“Despite concerns about a softening labour market and slow GDP growth, these banks understand the importance of investing in technology to improve processes and customer experience,” it added.

Despite technology spend by the large banks, the investment commitment of small and mid-tier financial institutions is yet to recover owing to cost pressure. Moreover, these financial institutions are preferring to develop critical tech applications in-house (in their technology captives) than outsourcing it to IT services firms, sources said.