India's $280-billion IT services industry is facing an unusual challenge from one of their biggest customers: banks are spending more on technology, but outsourcing companies are not seeing a corresponding rise in business. Financial institutions are increasingly directing their budgets towards artificial intelligence (AI), cloud infrastructure, cybersecurity and software products, leaving a smaller share for traditional IT service providers.
The shift is already showing up in the numbers. Technology spending by banks rose 8% year-on-year in the first half of 2026, while revenue growth from the banking, financial services and insurance (BFSI) segment for IT services companies was just 4%, according to ICICI Securities data reported by Financial Express.
For Indian IT companies, which have built a large part of their global business on banking technology contracts, the emerging gap raises an important question: will rising technology budgets continue to translate into outsourcing revenue?
The widening gap reflects a fundamental change in how financial institutions invest in technology.
8%: Growth in banks' technology spending during the first half of 2026.
4%: Revenue growth in the BFSI segment for IT services companies.
40-50%: Estimated share of IT services in BFSI technology budgets.
26-33%: Share of technology budgets allocated to software products.
36%: Growth in the offshore and nearshore banking GCC footprint between 2015 and the third quarter of 2025.
The figures indicate that technology investment is increasing, but traditional outsourcing companies are capturing a smaller share of the growth.
Banks traditionally relied heavily on IT companies for software development, application maintenance and infrastructure management. Their priorities are now changing as they modernise digital banking systems and adopt AI-based technologies.
A growing portion of technology budgets is being directed towards:
Artificial intelligence: AI models, automation tools and computing infrastructure.
Cloud services: Cloud storage, computing capacity and digital banking platforms.
Cybersecurity: Advanced security software, fraud prevention and data protection.
Enterprise software: Ready-to-use platforms and specialised financial applications.
Internal technology teams: Engineers and developers employed directly by financial institutions.
According to Everest Group, IT services account for approximately 40-50% of BFSI technology budgets, while software products represent another 26-33%.
When banks invest directly in cloud platforms or AI software, outsourcing firms may receive implementation and maintenance contracts. However, these contracts typically represent a smaller portion of the total expenditure.
Artificial intelligence is also changing the economics of India's IT services industry. Routine activities such as software testing, application support and maintenance can increasingly be automated using AI-powered tools. This may reduce the number of engineers required for certain projects.
Meanwhile, AI introduces additional expenses related to computing infrastructure, software models and usage-based charges. For companies operating under fixed-price contracts, these costs could squeeze profit margins.
However, AI also offers opportunities in fraud detection, regulatory compliance, risk management and customer service automation.
Another major shift is the growing preference among financial institutions to develop technology capabilities internally. Banks handle sensitive financial data and customer information, making security, privacy and regulatory compliance critical considerations.
Global capability centres (GCCs), which enable multinational companies to manage technology operations through their own offshore teams, are expanding. Everest Group data shows that the offshore and nearshore banking GCC footprint increased approximately 36% between 2015 and the third quarter of 2025.
Citibank offers a clear example of this transition.
The bank reduced its IT services partners from 144 to 50.
It simultaneously increased internal technology hiring.
The strategy reflects a growing emphasis on vendor consolidation and in-house engineering capabilities.
The changing spending pattern has implications for TCS, Infosys, Wipro and HCLTech, which depend substantially on financial services clients.
Traditional application development and maintenance contracts could face increasing pressure as banks adopt automation and expand internal teams.
However, outsourcing is unlikely to disappear. HFS Research found that 83% of financial services firms continue to hold external service providers accountable for technology delivery failures.
Future growth opportunities could increasingly emerge from specialised services, including:
Core banking and payments modernisation.
AI integration and automation.
Cybersecurity and regulatory compliance.
Fraud detection and risk management.
Cloud migration and data engineering.
For Indian IT companies, the challenge is shifting from labour-intensive outsourcing towards specialised, technology-led services that deliver measurable business results.
The central issue is not a slowdown in banks' technology spending. It is that a growing share of the money is flowing towards software, AI infrastructure and internal capabilities rather than conventional IT outsourcing.