The Hindu Business Line : IT budgets may shrink by a fifth in BFSI sector

Bangalore Sept. 30 IT spending by global financial institutions may shrink by a fifth in 2009 as large entities such as Bear Stearns, Lehman Brothers, Merrill Lynch and Wachovia Corp become victims of the worsening credit crisis in the US.

The financial services sector is the biggest spender on technology worldwide and Indian service providers rely on the sector to earn over a third of their revenues.

Research firm Celent estimates IT spending on products and services by global financial institutionss to grow at 5.9 per cent to $362.4 billion in 2008 and to $386.8 billion in 2009.

“As of today, 20 per cent of the IT budgets for 2009 will be cut,” said Mr Sudin Apte, analyst and head of for Forrester Inc’s India operations. Consolidation and disappearance of some large entities from the financial services arena would lead to budget cuts.

“There will be immediate scrutiny of new discretionary projects and compliance will become a key as government plans a bail-out package. As a result, there will be more spending on compliance,” Mr Apte said.

Recently Forrester said 40 per cent of the large businesses in North America and Europe have reduced their overall IT budgets for 2008 in reaction to a slowing economy.

About half of the financial services clients surveyed by Forrester have slashed their IT budgets for 2008.

‘Worse than expected’

“The crisis is turning out to be worse than expected and I guess that some 600-800 small and medium banks in the US will go out of business as the credit flow dries up,” said Mr Phaneesh Murthy, CEO of iGATE Corp.

“As a result of this credit squeeze and consolidation, I think there will be a 15-20 per cent cut in IT budgets of financial services sector for 2009,” Mr Murthy added.

Slowdown

Celent estimates indicate that IT spending by financial institutions has already slowed down in past two years. IT spending stood at $342.1 billion in 2007, a year-on-year increase of 5.9 per cent, but lower than 8.7 per cent growth achieved in 2006.

“I guess there would be a moderate cut of 10-15 per cent because of consolidation and reduction in scale” Mr S.Sabyasachi, research director at neoIT, an offshore advisory firm.

Transformational and business process reengineering projects could take a back-seat as financial institutions look to efficiency to cut their costs, Mr Sabyasachi added.