Australian banks look to India to cut costs

Offshore outsourcing is emerging as a new battleground in the financial services industry as Australia’s largest banks review a range of IT cost-cutting measures.

Both the National Australia Bank Ltd. (NAB) and the Commonwealth Bank of Australia (CBA) have undertaken “research tours” in India in the past month fuelling speculation they are considering moves to initially outsource back-end processing leaving the door open to customer-contact operations further down the track.

NAB spokesperson Samantha Evans has confirmed that CIO Ian MacDonald undertook a research tour of India earlier this month and would not rule out plans to offshore.

“We don’t offshore any processes at the moment, but it is something we do look at from time to time,” Evans said.

“That is not to say the option [to offshore] is not on the table, but if it was done it would be done very carefully, probably on a project-by-project basis.”

NAB, of all the banks, is under the most pressure to implement cost-cutting. In the past week it has slashed 1,700 jobs in the U.K. as part of a restructure of its two British banks, Clydesdale and Yorkshire, in a bid to save A$285 million (US$220 million) a year.

NAB chief executive John Stewart was unwilling to say how many jobs will go locally but the Finance Sector Union (FSU) said as many as 600 jobs will go.

FSU communications manager Rod Masson said the cuts will occur in “areas like check processing which is in line for outsourcing.”

Also undertaking a tour of India was Commonwealth Bank CEO David Murray who was researching how “to use IT know-how in the Australian operations”.

The Commonwealth Bank has lodged an application with the Reserve Bank of India to set up a branch in that country. CBA spokesman Brian Fitzgerald would say only that there are no firm offshoring plans “at this stage or in the future”.

One provider that has made a number of strategic acquisitions and invested heavily in India in the past 12 months is IBM with insiders claiming the vendor has approached a number of financial services firms with offers to provide outsourcing services.

The world’s sixth largest IT firm, India-based Patni Computer Systems, which has 30 per cent of the global insurance market, believes Australia is ripe to explore offshoring options and that banks will inevitably move in this direction over the next couple of years.

Patni general manager Rick Eager said there will be a fair bit of exploration initially and, because of fears of a community backlash, any offshoring will be tackled project by project.

“It will be softly, softly at first with back-end processes, but eventually customer-contact processes will also be a part of the equation,” Eager said.

“The momentum has begun but it is a highly competitive market especially here in Australia where there are a lot of Indian firms.”

A spokesperson for the ANZ Bank, which currently has 560 staff undertaking IT development in its Bangalore office, said no customer-facing roles will go offshore. But added that “given the advantages Bangalore has, it would be commercially naive for ANZ not to continue to look at opportunities to optimize its use.”

As well as having better access to vendor laboratories such as Microsoft and Oracle, which isn’t available in Australia, there is also access to a highly skilled work force.

“For example, 100 per cent of our Bangalore staff are graduates compared to around 30 per cent in our technology operations in Australia,” she said.

At St George, a spokesperson said there were no immediate plans in place but pointed out that the bank was always looking at ways to “ensure operations are running efficiently”.

The only bank to rule out offshoring was Westpac with spokesperson Julia Quinn saying that “Westpac wouldn’t even consider offshoring.”