Offshore tech spending by banks will increase from the present six per cent of the banking industry's $44 billion total annual IT budget to 30 per cent by 2010, the online publication InformationWeek reported on Friday.
"Among larger institutions in particular, offshoring is not one available cost-cutting strategy, it's become a basic necessity," the study carried out by a consulting firm Deloitte said.
Banks are moving well beyond outsourcing low-level application maintenance work and are increasingly relying on offshore service providers for help with more sophisticated technology projects, the study, released this week, said.
It said that offshoring offered big savings as programmers in India, for example, were paid anywhere from 40 per cent to 80 per cent less than their US counterparts.
It also described as exaggerated claims that rampant was cutting into cost savings. "In fact, 55 per cent of the banking IT executives interviewed expect their offshoring costs to rise by less than 10 per cent this year, while 36 per cent expect the costs to remain flat or decline," the study said.
The study also pointed out that the increase in offshoring by US banks was helping boost revenues at major outsourcing vendors, particularly those based in India. It cited the example of Indian IT giant Wipro, which reported that sales to the banking sector accounted for 21 per cent of its total revenue of $ 2.39 billion.
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