Captives of Industry
Captive units of the largest global financial services firms like Citigroup, Goldman Sachs and Wells Fargo are growing faster than the $150-billion Indian IT industry - a troubling sign for Indian technology services companies which get almost half their revenues from that sector, reports Economic Times. Regulatory filings made by these captive units, accessed by ET, show a scorching pace of growth.Revenue grew by 68% to Rs 1,531 crore in fiscal 2015 for Citigroup arm -Citicorp Services India. The unit registered 66% growth in the previous year. American bank Wells Fargo's captive grew 31% in fiscal 2015 and 41% in the previous year while Goldman Sachs' captives revenue expanded by 15.7%.
In contrast, the Indian IT industry's revenues grew 13.1% in fiscal 2015, with the country's largest IT services firm, TCS, growing at 15% and Infosys at 5.6%. To be sure, the likes of TCS and Infosys are growing off a larger base, with revenues upwards of $15 billion and $8 billion respectively during that year, while the captives are much smaller. “The Company would continue to focus on the increasing business momentum, keeping in view the opportunity it presents to its clients," Citicorp said in its filing. It added that the growth could be attributed to its centres of excellence in the areas of analytics and other digital offerings.
Captives, also called global in-house centres, are also increasing their overall headcount. At the end of FY16, according to Nasscom, they employed 846,000 people, over a 100,000 more than the previous year even as hiring in Indian IT seems to be slowing. “Ratio of employees in GICs to employees in tier-I IT has increased from 50% in FY13 to more than 90% in FY16,"analysts at HDFC Securities said in a report released in February, highlighting the increasing competition. Citicorp said staff strength, including temporary staff, increased 67% to 5,808 employees at the end of March 2015. It forecast that its headcount would cross 9,000 by the end of that year.
Experts are of the view that insourcing, where clients take back work in-house that they earlier outsourced to technology services providers like Infosys and TCS, is one of the main reasons for the rapid growth of captives. “The reason this is happening now is that with automation, some clients realise that if they take the work in-house and automate, they can get the full benefit," V Balakrishnan, former CFO of Infosys and IT industry expert, said.
Citigroup has a multi-billion dollar contract due for renewal next year, according to data from IT advisory firm ISG. The bank is a top client for Tata Consultancy Services and smaller IT firms like Mphasis and Virtusa-Polaris.Growth in the Indian IT sector is slowing. Industry body Nasscom has said the sector will grow just 8.6% in constant currency in the current fiscal and the industry body has delayed giving a growth target for FY18, citing increased uncertainty. Financial services firms looking to do more of the work themselves are creating new office infrastructure to attract right talent. French financial services giant Societe Generale created a new office, designed with couches, surf boards and phone booths. “In the past, we were more open in where we went to hire but now we are focusing on top engineering colleges. We are even hiring through hackathons," Veronique Sani, Chief Executive Officer, Societe Generale Global Solutions Centre, told ET.
Sani added that the India office was playing the role of the disruptor within the group, focusing on higher value work to create a prototype for the `bank of the future'.Societe Generale Global Solutions Centre reported that total income grew 26.5% to `911.5 crore in FY15, according to its RoC filing. “We have a smaller proportion of work being outsourced compared to some competitors. But now I see that more banks are looking at doing more of their IT work in-house,"Sani said. “We are notionally targeting doing about 60% of work in-house and using vendors for the rest,"Markus Lickert, global head of UBS Business Solution Centres, told ET late last year.