Indian banks are currently witnessing robust growth under the influence of a changing regulatory environment, rapid technological advancements, heightened competition and consolidation. This changing landscape in the banking industry is driving banks to explore the outsourcing option to achieve efficiencies.

• SBI, the largest Indian PSB outsourced its customer support operations to MphasiS, to provide voice-based inbound services.
• HDFC Bank outsourced its non-core back office activities to Sai Seva Business Solutions, a rural BPO.
• InfoVision has over 14 banks as its clients and provides both voice and non-voice services

Indian banks are currently witnessing robust growth under the influence of a changing regulatory environment, rapid technological advancements, heightened competition and consolidation. This changing landscape in the banking industry is driving banks to explore the outsourcing option to achieve efficiencies.

The total opportunity for outsourcing in the banking sector is estimated at Rs. 11.2 b for FY08. Our research suggests that little over one-third of this opportunity is currently being met. The majority of revenues are earned from voice-based services in sales and marketing.

Services Outsourced by Indian Banks

Given the regulatory and other constraints, the outsourceability of processes is thus determined predominantly by two factors - their classification as core service and the strategic value of the process.

•    Core Processes: These are classified as core process by RBI or the process categorized under KYC norms
• Strategic Value Processes: Activities/ Processes with strategic importance to banks   

Most of the large banks outsource entry level services like data entry, digitization, data preparation and validation etc. These services do not require domain expertise in banking and can be easily outsourced. Also, sales and marketing activities like loyalty programs, outbound sales and inbound customer support are easily outsourceable.

Currently, there are around 15 to 20 large vendors providing BPO services to various banks. A majority of the vendors primarily provide voice-based CRM services to large banks.

These vendors include large international BPOs (like IBM-Daksh, MphasiS, etc.), BPOs with substantial focus on domestic market (like InfoVision, Intelenet, etc.). In addition to large BPOs, there are several other midsized and small BPOs primarily offering low value BPO services to banks.

Future Outlook

• With greater success in IT outsourcing, Public Sector Banks will be more inclined to outsource their business processes thus leveraging on the benefits gained through investments in IT.
• Foreign banks having captive centers servicing their global and Indian subsidiaries are unlikely to entirely hive off these centers to third party vendors in the near term. However, some of the services from the captive centers will gradually see their way to third party vendors over the next few years.
• The scope for outsourcing will widen in the long term with customers migrating to new delivery channels (like mobile banking) coupled with implementation of CBS in finance and HR.

With strong technology platform and aggressive expansion plans private and foreign banks will drive the growth in outsourcing. Backed by a strong industry growth and phased de-regulation, we believe that outsourcing in the banking sector is set to gain momentum over the next few years.