TCS Buys Citi's Back Office Operations in India

Posted by: Steve Hamm on October 08

Some analysts are warning that the sky is falling for Indian outsourcing companies with heavy dependency on the West’s banking industry as clients, but you wouldn’t know it from TCS’ bold move today. It’s paying $505 million in cash for Citigroup’s captive business process outsourcing arm in India. As part of the deal, Citi is guaranteeing TCS $2.5 billion in BPO business over the next 9.5 years. Combine TCS existing IT outsourcing work for Citi with the new contract and the company will be reaping about $450 million a year in revenues from the relationship—making Citi its largest customer. The deal also gives TCS the capability to provide the entire array of transactional business process outsourcing work for the banking industry. “We’re making a long term play,” I was told today by N. Chandrasekaran, the company’s COO. “It will drive a significant amount of work once the crisis period passes.” So, rather than fleeing financial services in a panic, TCS is taking on even more business there.

Here's what Chandra is thinking: As the banking industry consolidates in the wake of the global finance crisis, the survivors will need technology integration services and increased efficiencies. The Indian outsourcing companies have proven adept at delivering both for clients. So he anticipates increased demand after the immediate crisis passes. Another thing to consider: Just because companies are failing--Lehman for example--that doesn't mean the back-office and IT work disappears. TCS had a small piece of business with Lehman, and now that Nomura has bought that piece of Lehman, it's negotiating with the new owners to see what services will be needed.

TCS has had particularly good fortune in the crisis. It's big banking customers are B of A, JP Morgan Chase, and Citi--three of the big survivors. It had only small slices of business with the badly-damaged or failed banks.

Chandra also poured cold water on the rumors that TCS is hurting financially. "While there has been some impact on our projects, we think our clients will do well and we expect more volume to be driven in the future. So we're not doing anything dramatic in cost cutting, and we're still recruiting."

It's quite possible that the global meltdown will get even more dire and conditions will worsen dramatically for TCS, but, so far, apparently, so good.

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