Indian technology companies, who depend heavily on the western worlds financial
services industry, could be affected by an intense anti-Wall Street/big banks sentiment sweeping the US and the UK, said experts and industry executives.
More than $25 billion of software exports from India is contributing to big American and the UK banks such as JP Morgan, Citibank, Barclays and RBS. Companies such as TCS, Infosys and Wipro derive a large part of their income from these institutions by running their business and IT systems and doing integration projects for firms wishing to merge.
While nobody is talking about another meltdown or even the collapse of big banks, the increasingly strident anti-big banks tone being struck by politicians, former regulators and the public is arousing concern among Indian technology executives, industry associations and independent experts.
Negative public sentiment is a concern because they can drive regulations, said Girish S Paranjpe, joint chief executive of Indias third-biggest software exporter Wipro. People still think that the financial greed has led to loss of jobs and there are enough bonus stories coming out, causing more damage, he added.
Despite many banks returning the TARP funds, the regulatory environment is not going to be easy. There are elections next year and you will find more populist measures being introduced, Som Mittal, president of Indias outsourcing association Nasscom, said on Sunday.
Their worries are not without basis. Reports of the big banks giving large bonuses to their staff have not gone down well with the public. Anger is mounting on Capitol Hill and the White House over what they perceive to be reluctance of the banks to lend to small businesses and consumers leading President Obama to lash out at fatcat bankers recently.
The US Congress is likely to see the introduction of a Bill that seeks to bring back the provisions of the Glass-Steagall Act, the depression-era legislation that was repealed in 1999 when Bill Clinton was the president. The act separated commercial banking from investment banking and prevented banks that took deposits from the public from underwriting securities. Repeal of the act is widely believed to have made banks take large market risks leading to the financial crisis of 2008-2009.
The Republican Senator and the 2008 presidential candidate John McCain and Democrat senator Maria Cantwell are seeking to introduce a bill that would include provisions of the act. The bill does not enjoy popular support and is not guaranteed to pass, according to reports in the US .
But in what could be an ominous sign for the banks, the House of Representatives is likely to take up a similar legislation soon. Paul Volcker, the former Fed Reserve chairman, has publicly called for reinstating the Glass-Steagall Act and warned banks and finance companies that they are yet to realise the gravity of the problem. Wake up gentlemen! he recently wrote in a newspaper article, saying America needs to produce more, finance less.
Around a decade ago, the US had repealed the 1903s Glass Steagall law enabling the rise of large banking conglomerates such as Citigroup, JP Morgan Chase and Bank of America. If at all the act is reinstated, Bank of America and Merrill Lynch will have to be separated again, and JP Morgan will have to give up the trading business it acquired from Bear Stearns.
That will obviously affect the Indian IT companies which have recently bagged a number of orders relating to integrating systems and processes of firms who have concluded M&A deals. Indian IT firms could also be affected, if the banks are broken up and the balance sheet sizes become smaller. In the UK, there is a great clamour for the banks such as RBS to scale down and focus on a few geographies than be global players.
Source : http://www.siliconindia.com/shownews/UK_US_Financial_service_can_take_a_toll_on_Indian_IT-nid-63984-cid-3.html
