Whether Citibank (NYSE:C), Barclays (NYSE:BCS) or ANZ (NYSE: ANZ), the global banking community is looking up to India like never before.

Cost reduction is a huge driver…
The proposed buyout of ABN AMRO Bank by Barclays is expected to translate into a staff reduction of 12,800, with another 10,800 positions set to be offshored. The integrated entity expects to make use of ABN AMRO’s shared services facilities in lower cost destinations, especially in India where ABN AMRO has a strong back-office presence. Meanwhile, ANZ Grindlay’s will expand its workforce in its software development center in Bangalore and will transfer additional computer development work from locations including Australia and the UK.

Earlier in April, the Citi Group announced that it expects close to 17,000 job cuts as part of a restructuring plan, and intends to move out over 9,500 jobs to lower cost destinations in the US and overseas. With over 11,000 employees engaged in offshored services in India, there is a lot of expectation about bulk of the jobs moving to India.

But a dual opportunity beckons
A study conducted by ValueNotes in 2006 brought out that almost 50 percent of the world’s largest banks in terms of asset size are offshoring to India. But apart from leveraging the outsourcing success of India, the domestic banking industry is throwing up unique opportunities that are attracting global banks to enter the mainstream banking sector in India. Rapid economic growth and financial sector reforms have created enormous demand for banking and financial services in India.

A large number of global banks have established a base in India in the last decade. There are currently more than 33 multinational banks that operate alongside India’s private and public sector banks. Although the foreign banks have limited presence especially outside of the urban areas, they have managed to compete so far by targeting different niches – such as wholesale, investment and private banking.

For instance, Citibank has also made India a key element of its business strategy. The bank has created a network spanning more than 50 Indian cities and has made its mark in corporate banking by focusing on credit card customers and small and medium enterprises. It is now expanding to other segments of banking in India. Similarly, HSBC, Standard Chartered, ANZ Grindlays, etc have leveraged the domestic opportunity, besides their offshoring base.

Going Forward
The push factor for outsourcing to lower cost destinations is clearly the rising cost of operations, especially non-core services, in Western economies. ValueNotes estimates predict that offshoring of banking and financial services jobs to India will increase at a CAGR of 35 percent in 2007. About 168,000 employees are likely to be engaged in providing offshored services to global banking and financial institutions this year.

On the other hand, double-digit growth predictions about the potential for the banking industry, especially retail financing and real estate make it attractive to choose India. The Central Bank in India – the Reserve Bank - is adding to the pull factor by continuing banking reforms, especially in terms of allowing foreign direct investments and acquisition of smaller and regional Indian banks.

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