US and European financial institutions will look to shift more technology operations offshore as budgets are squeezed following last year's credit crisis, according to the head of India's Infosys Technologies.
Kris Gopalakrishnan, Infosys CEO, told UK newspaper The Times that he expects offshoring to be allocated a greater proportion of budgets this year as banks look to keep budgets and wage bills down. He says many banks have kept budgets flat or even cut them from last year.
Bank clients have told the vendor not to reduce hiring levels, says Gopalakrishnan, because they will need "more support".
But Gopalakrishnan goes on to paint a bleak picture of the market and says banks are delaying budgetary decisions as they tighten spending. Some firms - particularly those hit hard by the credit crisis - are also being more cautious in deciding whether technology upgrades are needed.
The report says that service providers such as Infosys are also "re-visiting" plans to move away from low-margin work such as call centres and towards high-margin consulting services.
Gopalakrishnan's remarks chime with research conducted last year by European outfit Pierre Audoin Consultants.
The consultancy says, as a result of the crunch, banks will be seeking to do more with the same resources and budget, which will lead to increased demand for offshoring services.
Banks will look to lower costs by outsourcing horizontal processes such as finance and administration and human resources, as well as more core areas like mortgage and loans processing. Sepa payment processing may also be outsourced as some banks may not find it profitable to keep the process in-house, says Pierre Audoin.
Another recent study, from the Association of Technology Staffing Companies, found salaries for IT contractors working in the City have jumped by 11% in the past six months - to the highest level for two years - as banks put a freeze on permanent hires following the credit crisis.
The Financial Times quotes anecdotal evidence from research group International Financial Services London which suggests a 10,000-strong decline in City headcount this year, as firms adjust staffing levels during the ongoing credit crunch.