The Hindu Business Line : `Indian IT cos may lose to global firms on Basel II'

THE domestic IT vendors are likely to lose out to global consulting majors (read IBM, Accenture) on the business opportunities accorded by the regulatory compliances such as Basel II and Sorbannes-Oxley Act.

International providers with stronger business process (the big five consulting firms) and financial services will fare better than generalised IT service providers, in particular the `offshore firms,' if Indian IT companies do not succeed in building a critical mass of domain experts with in-depth knowledge of these compliances.

"A fairly high degree of business knowledge will be required to provide service for regulatory compliances such as Basel II and SOX.

"Here competitors having 200 or more financial experts are placed in a better position to develop packages addressing the compliance requirements vis-a-vis Indian firms who have a handful of experts. Indian providers will also need to create offerings wherein the onsite-offshore delivery is clear since most financial institutions will want the software vendor to deliver services onsite and here Indian companies could lose the cost advantage," Mr Partha Iyengar, Vice-President and Research Director, Gartner Research (India), told Business Line.

Basel II is a complex new standard for measuring risk in financial services firms that has been published by the Basel Committee on Banking Supervision, which is a committee of the Bank for International Settlements (located in Basel, Switzerland), specifically in areas of risk include credit, operations, and the market.

For IT firms, opportunities would exist mainly in the areas of operational risks in terms of technology support for internal ratings based credit and operational risk approach, database technology and integration with front-office decision tools, areas of data collection, tracking and monitoring, analysis and reporting, risk management system, asset and liability management system, cash liquidity management and business intelligence engine.

Given that the Basel II compliance is largely Europe-centric and with major financial institutions working vigorously to meet the New Basel Capital Accord (Basel II) by 2007, Indian IT vendors should primarily explore the Europe and the US markets. Even though analysts are yet to give an exact estimate, industry sources peg the opportunity to vary between $18 billion and $80 billion. Tier I players such as Infosys, Wipro, TCS and Tier II vendors such as MphasiS, Polaris, i-flex and Cognizant are among those Indian firms that are better positioned to compete with international consultants.

However, certain issues such as comprehensive understanding of Basel II along with development of "more than canned solutions and being able to dovetail with whatever is understood with the global delivery model offered by Indian firms would help these companies compete with the likes of Cap Gemini E&Y and IBM," Mr Iyengar said.