Why isn’t Infosys Getting into Banking?

16 07 2010

Infosys Technologies (Infy)  is the bluest of the bluechips in the Indian IT sector. It is usually the first company to declare its quarterly results. The results and guidance given by Infy sets the mood for the earnings season. Like every quarter, Infosys declared its results for the Q1 2011 on the 13th of July.  The market was not enthused as there was a dip in the profits and the guidance is nothing spectacular.

It now appears that Infosys has become a prisoner of its own success. It has become huge with a turnover of nearly Rs 25,000 crore and a workforce of 114,000. Just running this large enterprise and maintaining the profit margins in a volatile environment seems to be keeping the top team entirely occupied. The business model of the company remains largely unchanged in the last 15 years. US (67 %) continues to be the major market. Banking, Financial Services and Insurance (BFSI) remains the biggest vertical, accounting for 35% of all business. Application Development and Maintenance (ADM) accounts for about 40 % of all the services. Consulting and BPO businesses may provide them the breadth of services, but they remain small. Unlike, other Indian IT companies, Infy has not made any major acquisition in India or abroad.

What was a growth stock is slowly becoming a dividend-yield stock. With no major growth plans or big ideas, it will be difficult for the Infy stock to keep its P/E ratio at 25-30 that it commands today.

Now here is a piece of unsolicited advice to the management of Infosys – enter the banking business, by getting a banking license.  RBI has said they would be releasing a few licenses as per the new policy. They could also be looking at acquisition opportunities for the old private banks which may come up for sale. Given their conservatism/arrogance the second option looks unlikely.

Here are a few reasons why Infosys could get into banking:

  • Infosys is a big brand and a solid reputation as a respectable and ethical company. Infosys Bank should command a lot of goodwill from customers as well as investors from Day One.
  • Infy would be having good knowledge of the Banking and Financial Services processes  worldwide thanks to it being their major vertical. Infy also has its own Core Banking Solution Fiancle which may be deployed in the new bank. This would bring down the investment cost significantly. The BPO arm of Infosys can handle a part of the customer service.
  • Infy being headquartered in Bangalore, availability of experienced bankers to handle specialised positions should be easy. Karnataka is home to several banks and bankers. Banking is in the blood of Kannadigas. Mohandas Pai , though Director HR, is basically a Finance person and handles the HR function like an accountant. He could be an asset for the Infosys Bank.
  •  K.V.Kamath, the man who transformed ICICI Bank is already on the board of Infy. He could be given a special assignment to set up this new bank. Great professionals don’t retire. Look no further than E.Sreedharan who took up the Delhi Metro assignment, after being well past 70 years of age.
  • Infy already has its first set of customers. It has 113,000 employees.
  • Infy has a huge cash balance of nearly 15,000 crores. Instead of keeping them as FDs with State Bank and other PSU banks, it could easily deploy a part of this for its Banking business.
  • Infy Bank may not require a public issue. But if its IPO does come out, it can command a huge premium and will be a sell-out.
  • The promoters are occupying the top job by turns. How about the promoters’ children ? They would be ready for jobs now. The Infosys Bank could well be a place for them.
  • Financial inclusion is one of the stated goals of the UPA govt and PM. Infosys could easily deploy its Foundation to get some aam aadmi  to open accounts with the Infy Bank and thereby improve its CSR image further.

If all the above reasons are not convincing, then here is one more. Infosys may have technology in its name, but it is hardly a technology company in a classical sense. It is a huge and efficient bureaucracy where the bean counters rule. If such a  competency is identified with the organization’s core, banking is an appropriate business. I am waiting to open an account in Infy Bank.

– G. Mohan

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3 responses

16 07 2010
Gaurav Mundra

Thoughtful article. Being an ex-Infoscion, I can co-relate with each point that you had mentioned.

19 07 2010
Shiv Basu

There is always a point when the ROI graph begins to tip if we continue to explore only on “bread and butter” no matter where our search of new growth opportunities takes us. Growth indeed is possible horizontally to newer geographies, or vertically moving in to business consulting. However still, there is always a point of saturation.

We have to agree, that even to keep the market position intact, a company needs to continually re-invent itself to keep abreast of new business practices and technologies.

For that matter, I had always been a promoter of diversification. If you are ready for the adventure, start off with a new venture altogether as long as you have the brand power and cash surplus to help you with. Remember, when Infy was a start-up, it was just another similar adventure.

You can always hire the best brains to run your business; it need not be “in synergy” with what you are doing now. The best area to move into, should be determined by factors in economy, society, techonology; and not what my current board of management is comfortable with. I would say banking seems nice given the points that you have made Mohan. I do not think the Chinese style manufacture-export led growth is possible in India. The Luxembourg way seems more plausible through development of financial services. Infy Bank could just be the first milestone.

Moving on, probably one could explore health-care as well. Although my dream would be to get into infrastructure, utilities, and even urban development. I guess ‘power’ sector would be nice – India is in that juncture now, where power sector should be experiencing higher demands (with the money to pay for it) that can be met better with private investment.

22 07 2010
sowmya

This is the most ridiculous blog I’ve read in a while. I have no clue who the author is or what his/her credentials are, but surely, a business 101 will not be a waste of your time.

Replying to the post and the comment above:

“You can always hire the best brains to run your business; it need not be “in synergy” with what you are doing now. The best area to move into, should be determined by factors in economy, society, techonology; and not what my current board of management is comfortable with.”

Sure best brains can be hired, capital can be raised, so what does it take to start a business then? it takes an idea, an innovation that differentiates you from the rest of the competitors. When infosys started, the concept of offshoring and a global development model is what differentiated it from the rest of the companies and fuled it spectacular growth.

“Infy would be having good knowledge of the Banking and Financial Services processes worldwide thanks to it being their major vertical. Infy also has its own Core Banking Solution Fiancle which may be deployed in the new bank. This would bring down the investment cost significantly. The BPO arm of Infosys can handle a part of the customer service.”

To draw a parallel to the world of cricket, this is akin to saying that since the pitch curator has been so closely involved with the game of cricket, he should become the coach or better still the captain.
The very fact that infosys has been performing these process for the banks shows that these are non-core operations in the process of running a bank. Is the core banking solution the most significant cost hurdle in running a bank?!

“Infy being headquartered in Bangalore, availability of experienced bankers to handle specialised positions should be easy. Karnataka is home to several banks and bankers. Banking is in the blood of Kannadigas. Mohandas Pai , though Director HR, is basically a Finance person and handles the HR function like an accountant. He could be an asset for the Infosys Bank”

Kanndigas are also famous for their udupi hotels. NRN also likes south indian food. Why not leverage this and start an infosys hotel. All the infosys employees also need to eat, so there is your customer base. Seriously?

” K.V.Kamath, the man who transformed ICICI Bank is already on the board of Infy. He could be given a special assignment to set up this new bank. Great professionals don’t retire. Look no further than E.Sreedharan who took up the Delhi Metro assignment, after being well past 70 years of age.”

Along with the assignment of writing 20,000 times each day that he will not let the new special assignment conflict any of his previous not so special assignments with icici bank? honestly, if i were to start the bank, why would i be restricted to award the special assignment to only those in my board of directors?

“Infy already has its first set of customers. It has 113,000 employees.”

Who are bonded slaves to only open account with infy bank. Wth, when they are on bench they can also help out with the running of the bank.

“Infy has a huge cash balance of nearly 15,000 crores. Instead of keeping them as FDs with State Bank and other PSU banks, it could easily deploy a part of this for its Banking business.”

And one Mr Ramalinga Raju can be given the special assignment of who to make the infy bank a private entity and siphon out money from infosys technologies into the bank.

“Infy Bank may not require a public issue. But if its IPO does come out, it can command a huge premium and will be a sell-out.”

Why?

“The promoters are occupying the top job by turns. How about the promoters’ children ? They would be ready for jobs now. The Infosys Bank could well be a place for them.”

Yea they can run the company and the children of the infy employees can work there. You will have to start working on the plan for he grand children very soon though.
So many expletives, so lil’ time.

Financial inclusion is one of the stated goals of the UPA govt and PM. Infosys could easily deploy its Foundation to get some aam aadmi to open accounts with the Infy Bank and thereby improve its CSR image further

The stated goal of BJG is to build the ram mandir. If they come to power, infosys will start a construction company?

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