US realty slump to hit IT-BPM firms

Roller Coaster Effect

- Many top US lenders have large GCCs operating out of India

- US housing sales declining due to high interest rates

- Top mortgage players are clients of many large, mid-tier IT cos

- Top-tier BPM services firms also handle many transactions

Bengaluru: Slowdown in US housing market may spell trouble for Indian IT-BPM industry as many Indian IT &BPM services providers have strong association with several American mortgage players in implementing technology projects.

Moreover, many top US mortgage banks have their GCCs (Global Capability Centres) in India, which handle many IT-related and other operations for these companies. Therefore, prolonged slowdown in US housing market is likely to affect operations in these GCCs, leading to cost optimisation moves in these units.

"The slowdown in US housing market is definitely not good news for Indian IT and BPM industry. As mortgage demand has touched 22-year low in US, mortgage firms may put many technology projects on hold, while reducing the staff on BPM. So, any prolonged slowdown will lead to less number of outsourcing projects to Indian services providers," said Sanjeev Dahiwadkar, founder & CEO of mid-tier IT firm ITShastra.

Dahiwadkar was also the founder of US-based mortgage technology firm Indisoft that specialises in technology solutions for the defaults and risk management in the USA mortgage industry.

US housing sales are falling in recent months owing to high interest rates as US Federal Reserve raised rates for containing high inflation. Home sales in the US have touched the lowest point in seven years, reflecting one of the most severe declines in the last two decades.

Many large and mid-tier IT services firms in India are currently implementing several technology projects for top mortgage players in the US that include Wells Fargo, Bank of America, JP Morgan Chase, Rocket Mortgage, and United Shore Financial Services among others.

The extent of association with US mortgage players is not known, but companies like Tata Consultancy Services (TCS), Infosys, Wipro, L&T Infotech and many more have implemented several projects for US banks as per their public announcements. Similarly, top-tier BPM services firms also handle many transactions for US mortgage players.

Apart from outsourcing of projects, many of the top US lenders have large GCCs operating out of India. Staffers of these captive centres not only process millions of transactions for their parent entities every day, these centres have also emerged as important technology innovation centres for their US entities. Experts said any fall in housing sales don't augur well for these captives at a time these centres are hiring aggressively to upscale their scope of operations.

However, the overall BFSI vertical of Indian IT players may not be impacted much as many US banks have scaled down their exposure to mortgage industry post global financial crisis in 2008-09.

"Since housing bubble burst in 2008-09, many US banks have cut down exposure to risky assets. Also, insourcing of projects by top US banks have increased. So, the BFSI vertical may not be impacted much due to slowdown in mortgage market," said a source. BFSI is the largest vertical for most big Indian IT firms with more than 30 per cent of revenue coming from the financial services segment.

The slowdown in US housing market is definitely not good news for Indian IT and BPM industry. As mortgage demand has touched 22-year low in US, mortgage firms may put many technology projects on hold, while reducing the staff on BPM. So, any prolonged slowdown will lead to less number of outsourcing projects to Indian services providers

-Sanjeev Dahiwadkar, founder & CEO, ITShastra