TCS, Infosys set to gain from RBS' technology splurge

BANGALORE: Indian tech vendors are set to gain from around $9.5 billion technology spend planned by the Royal Bank of Scotland (RBS) over the next five years, as up to $2-billion worth of back office and application development, maintenance projects could be outsourced to the Indian offshore suppliers including Infosys and TCS apart from the bank’s own IT captives in India. RBS, which is owned 70% by the British government, aims to save around $4 billion in operational costs by 2011 by outsourcing non-core IT activities, integrating different technology banking systems and ensuring better focus on marketing initiatives. In a presentation made to Bank of America-Merrill Lynch investors last week, RBS chief executive Stephen Hester said that the bank has actually underspent on technology during past few years. “Both in absolute ratio terms relative to our competitors, we have underspent on technology and we have also spent more of it of running the bank — dealing with lots of different systems inherited from past acquisitions — than changing the bank,” Mr Hester said. When compared to other rival banks, RBS has indeed spent less on technology. Between 2005 and 2007, IT spend accounted for 7.2% of RBS’ revenues, when compared with 8.7% of technology spend by its regional peers. According to the European Banking IT Cost Benchmarking study published last year, IT spend accounted for 12.8% of RBS’ total expenses during 2005-07 , lower than the 16.4% allocated by its peers. Indian tech like Infosys and TCS see newer opportunities of integration projects, system maintenance and back office outsourcing emerge as RBS takes a hard look at its existing processes for efficiency gains. RBS also works with CSC and Sapient, and may retain them for onsite projects, experts told ET on conditions of anonymity. An RBS spokeswoman did not reply to an email query sent by ET on Tuesday. Indian technology vendors would not offer any comments as they are maintaining a silent period before announcing their financial results later this month. “We do see more dialogues happening there, compared to few months ago when there was uncertainty around RBS’ technology spend,” said a senior official at one of the Indian tech firms exploring these opportunities. “However, the discussion seem to a lot more focused on onsite job creation because of the current economic downturn,” he added. One of the biggest challenges facing RBS is over a dozen different technology systems inherited through acquisitions over past many years.Making them work together, and even standardising some processes under a common platform will help the bank become more efficient and competitive. As part ofthe IT spend, RBS plans to consolidate its existing data centres, replace the current claims system in its insurance business, and even deploy newer retail banking solutions. For RBS, India is an important part of the bank’s restructuring and integration with ABN Amro. In February this year, Mr Hester said India will play a significant role in serving the bank’s operations across the globe. “India is a very important technology and administration centre for us, serving the rest of the world. I expect that to continue and in fact expand in its operations,” he said while announcing the annual financial results. Experts such as Sabyasachi S Satyaprasad, partner at offshore advisory firm Tholons say RBS is expected to move more mainframe based support and maintenance work to India. The bank already outsources a major chunk of its IT work to its captive centres in Gurgaon and Chennai. “RBS is planning to consolidate its processes across retail and wholesale banking, an initiative that was long pending, so this spend is not really surprising,” Satyaprasad said. Despite concerns around whether the state-owned banks can pursue outsourcing of services amid rising unemployment in their home markets, “the UKFI has repeatedly clarified that it will not interfere in the banks’ internal efficiency measures,” said a UK based expert. He requested anonymity because he is not authorised to comment on UK government’s policies. UK Financial Investments (UKFI) manages government stakes in ‘bailed out’ banks such as RBS.