BFSI bump for IT cos as war escalates

Contagious Risks

- US-based Citigroup has $10 bn in total Russian exposure

- Other major US banks, including JPMorgan Chase & Co, Morgan Stanley underwrite and advise on Russian deals

- Austria's Raiffeisen Bank Intl, France's Societe Generale SA and Italy's UniCredit SpA have significant businesses in Russia

Bengaluru: Financial services vertical of Indian IT services firms may see growth bumps in coming quarters as wide spread sanctions on Russian financial system including banks, central bank and selected individuals are likely to create contagious risks.

Though it is not known what is the extent of European and American financial services institutions' exposure to Russia and Ukraine; some banks have started to provide initial estimates of their exposure.

US-based financial services giant Citigroup has $10 billion in total Russian exposure. Similarly, other major US banks, including JPMorgan Chase & Co, and Morgan Stanley among others which underwrite and advise on Russian deals, often alongside the investment banking arm of state-owned VTB, may also have to take hit on those businesses. Under the US sanctions, any assets of VTB, including 20 subsidiaries that touched the US financial system would be frozen and US citizens would be prohibited from dealing with them.

Apart from US-based financial institutions, European banks and investment banking entities also

have exposure to Russia. Austria's Raiffeisen Bank International, France's Societe Generale SA and Italy's UniCredit SpA have significant businesses in Russia.

Last week, the European Central Bank told lenders active in Russia to report on the risks they face from a range of diplomatic and military scenarios related to Moscow's tensions with the West over Ukraine.

"Though Indian IT firms don't have much exposure to Russian financial institutions as per publicly available reports, most top banks of Europe and the US are their clients. Therefore, some contagious risks arising from specific clients for domestic IT firms can't be ruled out," said a Mumbai-based IT sector analyst.

Following the invasion of Russia in Ukraine, the US and European countries have unveiled one of the harshest sanctions in recent years. Apart from banning Russian financial institutions, Russian Central Bank has also been debarred in these territories. Russia has also been cut off from the global payment system SWIFT by these nations.

When the world is dealing with Ukraine crisis, the impact of these sanctions will be known in the coming days.

Currently, most large IT services firms draw around 30 per cent of their revenues from BFSI (banking, financial services, insurance) vertical. This is also the largest vertical for most large and mid-tier IT firms. In this perspective, a small disruption can create client-specific issues for Indian IT firms, leading to growth risks in coming quarters.