ETtechTata Consultancy Services (TCS), India's largest software services firm, sees several opportunities arising from the banking crisis. The shift of customers to large banks—considered to be more stable—is creating a new set of business opportunities, CEO-designate K Krithivasan told ET.
“If you look at what happened, some of the large banks have been beneficiaries of these events as their deposits have increased. They are primarily our clients,” said Krithivasan.
During the fourth quarter, TCS’ BFSI vertical reported a growth of 9.1% over the year on a constant currency basis. This compares to 12.9% growth during the same period last year.
The company sounded a cautious note about the demand environment while announcing its annual and fourth quarter results last week, citing uncertainty in the North American and BFSI market.
In March, the US witnessed its second and third largest banking failures in history with Silicon Valley Bank (SVB) and Signature Bank both taken over by Federal Depositors Insurance Corporation (FDIC), while UBS has offered to take over Credit Suisse in Europe.
Krithivasan said TCS is well placed to help the smaller banks also to comply with new regulations very quickly. And similar opportunities will arise in other sectors also. He added that as in the case of the Swiss government coming to the aid of Credit Suisse, there is a level of confidence in the market that governments will aid banks if a crisis arises.
“Wearing my BFSI experience hat, I can expect that regional banks that have been impacted can see new regulatory requirements,” he said.
The company is, however, closely watching the situation in the sector where clients have turned very cautious, he said. The impairment from the collapse of these banks had minimal impact on the company’s business, he added.
“We need to look at opportunities that new technologies like generative AI produce for customers or ourselves,” Krithivasan said.
“Over the next 1-2 years, if there is no major banking crisis, then large banks are likely to be net beneficiaries due to net flow of deposits from mid-sized banks. This may result in improved tech spending by these banks and benefit IT companies,” said a report by ICICI Securities on TCS Q4 performance. The brokerage said that all critical projects with SVB, Credit Suisse and other impacted banks are moved over to the new banks taking over while discretionary projects in those banks have been postponed.
A report by Kotak Securities said that the banking crisis in US regional banks and European banks in March 2023 has induced greater caution and could impact the June 2023 quarter.
Captive opportunity
Following the financial crisis of 2008, TCS acquired Citi’s India captive BPO unit for $505 million and Wipro acquired Citi’s IT arm for $127 million, along with their respective employee base. Both of these transactions helped the IT service providers onboard Citigroup as a strategic client. Cognizant acquired Indian captives of UBS for $75 million along with a five-year $442 million service agreement from the bank. However, Krithivasan does not expect the same magnitude of captive acquisition at present.
“Currently, captives are held by the major banks or large institutions, they are not under a crisis. First of all, banks are not cash-starved. What happened in SVB is more of a liquidity issue,” said Krithivasan, adding that if an opportunity arises, the company will be happy to participate, however, there don’t seem to be too many on the horizon right now.
“If you look at what happened, some of the large banks have been beneficiaries of these events as their deposits have increased. They are primarily our clients,” said Krithivasan.
TCS generates over 30% of its revenue from banking, financial services and insurance (BFSI) segments and another 10% from banking-related products and platform offerings.
During the fourth quarter, TCS’ BFSI vertical reported a growth of 9.1% over the year on a constant currency basis. This compares to 12.9% growth during the same period last year.
The company sounded a cautious note about the demand environment while announcing its annual and fourth quarter results last week, citing uncertainty in the North American and BFSI market.
In March, the US witnessed its second and third largest banking failures in history with Silicon Valley Bank (SVB) and Signature Bank both taken over by Federal Depositors Insurance Corporation (FDIC), while UBS has offered to take over Credit Suisse in Europe.
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Krithivasan said TCS is well placed to help the smaller banks also to comply with new regulations very quickly. And similar opportunities will arise in other sectors also. He added that as in the case of the Swiss government coming to the aid of Credit Suisse, there is a level of confidence in the market that governments will aid banks if a crisis arises.
“Wearing my BFSI experience hat, I can expect that regional banks that have been impacted can see new regulatory requirements,” he said.
The company is, however, closely watching the situation in the sector where clients have turned very cautious, he said. The impairment from the collapse of these banks had minimal impact on the company’s business, he added.
“We need to look at opportunities that new technologies like generative AI produce for customers or ourselves,” Krithivasan said.
“Over the next 1-2 years, if there is no major banking crisis, then large banks are likely to be net beneficiaries due to net flow of deposits from mid-sized banks. This may result in improved tech spending by these banks and benefit IT companies,” said a report by ICICI Securities on TCS Q4 performance. The brokerage said that all critical projects with SVB, Credit Suisse and other impacted banks are moved over to the new banks taking over while discretionary projects in those banks have been postponed.
A report by Kotak Securities said that the banking crisis in US regional banks and European banks in March 2023 has induced greater caution and could impact the June 2023 quarter.
Captive opportunity
Following the financial crisis of 2008, TCS acquired Citi’s India captive BPO unit for $505 million and Wipro acquired Citi’s IT arm for $127 million, along with their respective employee base. Both of these transactions helped the IT service providers onboard Citigroup as a strategic client. Cognizant acquired Indian captives of UBS for $75 million along with a five-year $442 million service agreement from the bank. However, Krithivasan does not expect the same magnitude of captive acquisition at present.
“Currently, captives are held by the major banks or large institutions, they are not under a crisis. First of all, banks are not cash-starved. What happened in SVB is more of a liquidity issue,” said Krithivasan, adding that if an opportunity arises, the company will be happy to participate, however, there don’t seem to be too many on the horizon right now.
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