UBS-Credit Suisse Merger and US Banking Troubles to Impact India’s IT BPM Industry

This month, the US witnessed banking troubles with Silicon Valley Bank (SVB) and Signature Bank being taken over by the Federal Insurance Deposit Council (FIDC). In response, European regulators brokered a deal for banking giant UBS to acquire crisis-stricken Credit Suisse, one of the largest banking mergers and acquisitions in the region.

Moody’s has put First Republic, Western Alliance Bancorp., Intrust Financial Corp., UMB Financial Corp., Zions Bancorp. and Comerica Inc. under review for potential downgrades due to concerns about potential losses in asset portfolios.

Warnings from analysts suggest that the banking crisis in the US and Europe could have a detrimental impact on India’s $245 billion IT BPM industry, which is reliant on the BFSI sector for 41% of its income. The collapse of major banking institutions could result in decreased business and deferred payments. Analysts suggest that if large banking institutions collapse, it could lead to a decrease in business and deferred tech investments in the future, as well as delayed financial transactions. Companies such as TCS, Infosys, Wipro, and Mindtree, which largely depend on US banking institutions, may be impacted if the crisis worsens.  A JP Morgan’s report last week showed that the exposure of regional US banks to the two largest Indian IT companies, TCS and Infosys, is 2-3% of their total revenue.

Celent, a financial advisory firm, reported that North American banks are the biggest contributors to tech investments in retail banking worldwide, with an estimated budget of $82 billion out of the global expenditure of $250 billion in 2022. Indian IT companies have benefited significantly from the BFSI’s (Banking, Financial Services, and Insurance) tech spending.

Nasscom estimates that the Business Financial Services (BFSI) industry contributes approximately 41% of total enterprise technology expenditure in FY23. North America accounts for more than half of the revenue for companies in this sector, with Wipro topping the list at 35%, followed by TCS (31.5%), Infosys (29.3%) and HCLTech (20%). Tech Mahindra has the lowest share of the sector among the top IT firms, at 16%. It is estimated that the SVB exposure of TCS, Infosys and LTIM could lead to provisions in the last quarter of FY2023.

The macroeconomic environment could also reduce short-term technology investments by banks, leading to slower growth of bank technology budgets. This could cause delays in project ramp-ups and deal closures that could affect revenue over the next three to four quarters.