India’s $280 billion IT services industry is facing a shift in demand as banks increase technology spending but direct more of their budgets towards AI, cloud infrastructure, cybersecurity and software products instead of traditional outsourcing.
Technology spending by banks grew 8% year-on-year in the first half of 2026, while revenue growth from the banking, financial services and insurance (BFSI) segment of IT services companies stood at just 4%, according to ICICI Securities data cited in a financial report.
Where are banks spending?
IT services account for an estimated 40–50% of BFSI technology budgets, while software products receive 26–33%, according to Everest Group. Banks are increasingly investing in AI models, automation, cloud platforms, cybersecurity tools and enterprise software. Some are also expanding their in-house technology teams.
When banks purchase AI or cloud products directly, IT firms may still secure implementation and maintenance contracts, but these can represent a smaller share of total spending.
AI is also automating tasks such as software testing, application support and maintenance, potentially reducing the number of engineers required. At the same time, computing and software costs could pressure profit margins under fixed-price contracts.
However, AI creates opportunities in fraud detection, regulatory compliance, risk management and customer service automation.
Banks expand internal technology capabilities
Financial institutions are increasingly building in-house teams to maintain control over sensitive data, privacy and regulatory compliance. The offshore and nearshore banking Global Capability Centre (GCC) footprint grew 36% between 2015 and Q3 2025, according to Everest Group.
Citibank illustrates this shift. It reduced its IT services partners from 144 to 50 while increasing internal technology hiring, reflecting a focus on vendor consolidation and in-house engineering.
What lies ahead for Indian IT companies?
TCS, Infosys, Wipro and HCLTech could face pressure on traditional application development and maintenance contracts. Yet outsourcing remains relevant: HFS Research found that 83% of financial services firms still hold external service providers accountable for technology delivery failures.
Growth opportunities include core banking and payments modernisation, AI integration, cybersecurity, regulatory compliance, fraud detection, cloud migration and data engineering.
The challenge for Indian IT firms is to move beyond labour-intensive outsourcing towards specialised services that deliver measurable business results. Banks are not necessarily spending less on technology; more of their investment is flowing towards AI, software and internal capabilities.
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