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Global banks’ tech revival sparks hope for Indian IT sector

16-08-2024

Bureau Report + Agencies

NEW DELHI/ BENGALURU: Global banks have started reviving the technology projects they put on ice in 2023, raising hopes for the $254 billion Indian IT sector that makes about a third of its revenue from banking, financial services and insurance (BFSI) clients.

Quarterly reports from Tata Consultancy Services (TCS), opens new tab, Infosys, opens new tab, Wipro, opens new tab and others showed a nascent recovery in BFSI client demand after six quarters of depressed spending since the Silicon Valley Bank collapse.

“BFSI should come out faster as they are the ones that went into the caution mode first,” said TCS Chief Financial Officer Samir Seksaria, who hopes interest rate cuts by central banks and the end of US election-related uncertainty will boost client confidence.

The revival in demand for tech services from big banks such as JPMorgan Chase, opens new tab and Bank of America, opens new tab as mentioned during their recent earnings calls could also have a ripple effect.

JPMorgan said it was boosting its annual technology spending by $1.5 billion to $17 billion in 2024, while Bank of America has earmarked $4 billion this year for new technology initiatives such as developing generative artificial intelligence features.

“The recovery of banking is encouraging for the tech services industry as in the past other industry sectors usually follow suit,” said Peter Bendor-Samuel, the CEO of tech research firm Everest Group.

The top five US banks spent 6.8% more on tech investments year-on-year and 1.2% sequentially, their results for the quarter ended June showed, according to Reuters’ analysis.

The renewed tech investments are aimed at boosting regulatory compliance, customer experience and cybersecurity, while also revamping infrastructure through cloud migration, according to their earning calls.

Many analysts expect the US central bank to cut interest rates by 50 basis points in September, a move that will make borrowing cheaper and could ease cost pressures that forced many IT clients to defer discretionary projects.

“Lower interest rates in the US generally stimulate economic activity, leading to increased technology investments and larger transformation budgets,” said Hansa Iyengar, principal analyst at tech consulting firm Omdia.

A rate cut is also likely to result in a more favorable rupee exchange rate for Indian IT firms that typically bill most of their clients in US dollars.

The willingness to invest more in technology also comes amid a shift in strategic thinking among clients, industry executives said.

“I think it’s beyond cost right now. They’re looking forward,” Mphasis, opens new tab CEO Nitin Rakesh said, underscoring how BFSI clients who had toyed with generative AI wanted to use it to improve customer experience and operational efficiency.

The BFSI sector is ripe for AI use because it deals with a lot of data, is heavily regulated and prioritizes innovation, according to industry experts.

Most firms convert 19% of their proof of concepts, or evidence showing the feasibility of an idea, into projects but BFSI companies convert 31%, Constellation Research CEO Ray Wang said.

“Most companies with a successful AI project will double down and invest in another one,” Wang said but not everyone is convinced the spending revival will last.

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