Goldman, Morgan's switch to banks means more biz for IT cos

CHENNAI: When Goldman Sachs and Morgan Stanley gave up their independent investment banking status, it gave reason for Indian IT vendors to smile.

For, more regulations, as a commercial bank, could mean more business for software service providers. While the collapse of the other investment banks in the past few months sent jitters among the software vendors in India, government control of Goldman Sachs and Morgan Stanley gave the Indian IT some reasons to cheer.

Because, morphing into a full-fledged bank not only implies greater access to funds but also more regulation. And tighter regulation could mean tweaking their existing technology by adding more software and processes. They would have to adopt systems in areas such as retail banking, consumer banking, cards and corporate banking.
“It’s an opportunity for IT companies because conversion to traditional banks means they need to add a lot of processes, new functions and areas,” said Frost & Sullivan deputy director-ICT practice Kaustubh Dhavse.

Another analyst, who did not want to be named said, “It’s a bit too early to determine if it will have a positive impact on vendors in India. Currently, it looks like this is a just a window that would help them borrow credit from Fed at a discounted rate. Moreover, they might acquire capability in retail banking by acquisition, instead of building it.”

Wall Street, considered the holy grail for the investment banking profession, lost its sheen late Sunday, with news of Goldman Sachs and Morgan Stanley-two of the Street’s institutions that haven’t succumbed to the sub prime crisis as yet-getting converted into commercial banks that would be regulated by the US Federal Reserve.

As a result, the investment banking space, often characterised with power and heavy pay packets, would cease to exist as a separate industry. The development follows the tumble of iconic firms such as Bear Sterns, Lehman Brothers, Merrill Lynch and the near collapse of insurance giant AIG, because of their exposure to derivatives linked to housing and credit.

Of the top five Indian IT companies, experts said that while TCS services Morgan Stanley, Goldman Sachs is an important client for Infosys. So, the existing vendors would have an edge if these newly-regulated banks should go for an increasing in their off shoring activity to India.

It’s not clear how seriously they would expand to other areas of commercial banking, but if they do, it would mean a huge business for product makers.

“A one time expense account has to be incurred to support acceptance of retail deposits, install more ATM s and increase reporting requirements. We will see increased spending on technology from Goldman and Morgan Stanley. Expect product vendors to benefit greater than service vendors,” said Mr Shiva Ramani, CEO, Cybernet-SlashSupport (CSS), an outsourcing firm that’s into technology support.

At the same time, products and software services provider Polaris Software Lab’s CFO R Srikanth added, “It’s a good news for the industry. Though they already have vendors in India, it’s a good opportunity for product vendors. Platforms such as retain finance, risk and treasury, cards, consumer and corporate banking would help.” On Monday, the 30-share Sensex dropped 0.34% and the IT index dropped 0.75%.

Source:Goldman, Morgan's switch to banks means more biz for IT cos- ITeS-Infotech-The Economic Times
 
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