Intensity of spending in information technology (IT) by BFS (Banking and Financial Services) firms continues to be strong going into 2022, following a good year in 2021, said brokerage house Kotak Securities.
"For example, Citi in its investor day in March announced a 10 per cent increase in tech spending on top of a similar increase in the previous year. Drivers for outsourcing to Indian IT remain favourable even in case of spending reprioritisation induced by caution over growth slowdown," the brokerage said in a report on Tuesday.
The report went on to say that their analysis of large BFS firms in the US and Europe too indicate that spending on technology is resilient for now despite concerns on deteriorating macro fundamentals.
Firms are not planning to cut back investments in tech and are striving to find cost take-out opportunities in non-strategic areas.
"Firms have increased change budgets -- a trend that is likely to continue even in the case of an adverse macro environment. Renewed focus on cost efficiencies can aid large/mega deal conversions."
BFS firms view technology investments as providing a competitive advantage. Technology modernisation, cloud adoption and enhancing digital business are among the top strategic priorities given increased online penetration of banking products and services and increased competition from well-funded cloud native fintechs and big tech companies.
Investments are across digital leaders in order to maintain leadership and gain share for that of laggards to catch up and keep the share intact, the report said.
Further, the report said that BFS firms are willing to absorb additional costs in the short term without cutting multi-year tech investments that drive innovation which in turn drives productivity and efficiency.
"The rationale is that the technology investments will pay for themselves over a period of time and drive operating leverage."
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