Banks cash out of back-office arms as costs bite | india | Hindustan Times
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Banks cash out of back-office arms as costs bite

Rising costs and rapid changes in valuations are forcing banks to sell their back-office operations in India, report Indulal PM & Venkatesh Ganesh.

india Updated: Oct 10, 2007 20:45 IST

Rising costs and rapid changes in valuations are forcing banks to sell their back-office operations in India. Even as Citigroup is close to selling its back-office arm, Citi Group Global Services, to Genpact, Standard Chartered Bank is understood to have put its back-office unit, Scope, which employs a little above 4,000 people, up for sale.



Analysts and investment bankers said the increasing fund flow to the Indian equity market has increased valuations of even smaller companies. "With the Sensex hitting record highs, valuation equations are changing. Big banks like Citi and Stanchart have really developed their back-office operations; now operational costs are increasing and at the same time valuations are at their peak. This is the best time to cash out," said a Mumbai-based investment banker.



According to Forrester Research, big companies will face huge losses if they do not outsource back-office operations to third-party players. "Unrealistic cost models, attrition among employees, lack of process integration and inadequate management support are the key causes for captive centres getting into trouble," said Sudin Apte, India research head of Forrester. A captive back-office centre is a firm's own facility that is set up in a location that has cost advantages and skilled manpower.



UK-based firms BelAir Networks, a telecom product company, and Powergen, an energy company closed their call centers in India in 2006 and cited high costs and staff attrition as the major reasons. Citigroup set up its back-office arm in 1999. Since then, it has provided transaction processing, customer care solutions and technology services to Citibank India and Citigroup businesses in Europe, Africa, North America and South Asia.



In 2004, Citi delisted its back-office arm from the exchanges, offering Rs 975 a share and pegging the valuation of the company at Rs 1,200 crore. Now, the group is in talks with potential buyers, including a couple of private equity players, to sell the arm at a valuation of Rs 3,000 crore.