Royal Bank of Scotland's CIO of Markets, Scott Marcar, has said that the bank's offshored technology centre in Delhi, India, could experience staff retention problems in the future with the influx of internet giants, like Facebook and Google, that are looking to hire.
Speaking at Bloomberg's enterprise technology summit in London this week, Marcar also said that if he lost a senior member of staff that had been working in the centre for more than five years, it could take up to two to three years to get a new employee up to speed.
"Staff retention is a big issue for us. It's not as big a problem at the moment as you might think, our retention rates in India over the last two years have only been a couple of points above what they have been in the UK. From a raw numbers perspective it's not that bad," said Marcar.
"However, the issue we are having now is with people who have got the full six or seven years' experience in the centre -- the people with the institutional knowledge. If you are losing them, the time to productivity is a lot larger. In the UK if you lose someone you can go out and hire from one of the other banks. In India it takes two or three years to get someone up to speed, so if we start to lose talent at the top end we do have a problem."
He added: "We have been lucky by setting up in Delhi, as you don't see as much intra-bank movement as you do in the south (where a lot of other banks are located). In the north we see less of it, we have a relatively captive market. But we will start to see that erode over time as more financial services come into the area, and more recently we have seen competition from the Googles and Facebooks of the world. I expect us to monitor that very closely over the next few years."
RBS started building up the technology centre in India nearly a decade ago and employees approximately 1,600 technology staff in Delhi.
A genuinely global model
"We started our journey with our centre in Delhi seven or eight years ago, which is when we decided to go captive and not to outsource -- to build up the capabilities in India. We spent a lot of time working on how to develop things remotely, how to have a genuinely global model, which we integrate into seamless environment," said Marcar.
"We don't really differentiate between on-shore and off-shore in the same way we used to. With a lot of the other banks you see them chasing the dollar, looking for the next opportunity for cost arbitrage. We wanted just one centre, away from a lot of the other banks, and to run it as a global organisation," he said.
However, Marcar highlighted that getting to the stage where the off-shored centre is sufficient has taken a significant amount of time.
"In my experience it takes time to get the quality, to build up the institutional knowledge of what an investment company is and how the technology runs within that. I think it took us five, maybe even six years, to really see the benefit of that investment," said Marcar.
"I think a lot of companies in that time period would have come in and out, and tried to move to the next cheap place, like China or the Philippines."
He added: "Six years down the line we are starting to see some real benefits -- people who understand the systems."
Watching wage inflation carefully
Wage inflation in India, which Marcar said has been at 11-12 percent over the past two years, is also of concern for RBS. Although this has been balanced by changes in the pay in London's technology industry, it is likely that the cost saving gap from wage difference will shrink going forward.
"Wage inflation in India is high, but in the technology industry in London we have seen a similar wage inflation that has been driven by the huge amount of regulatory change in the industry. As such, we still see a 6:10 ratio of costs from India to the UK."
He added: "However, I don't think that will persist because it will become uneconomic. We will start to see some wage deflation in London and then we need to genuinely focus on whether that gap with London and India is closing."
Earlier this year RBS suffered a major IT failure where its customers couldn't gain access to funds in their bank accounts after a botched upgrade that was made to batch processing software CA 7 from CA Technologies, which impacted some accounts for more than a month.
It was revealed that it was RBS' Edinburgh-based IT staff that were responsible for the systems failure, which contradicted earlier media reports that claimed a junior IT worker based in India had made the error.
The bank has revealed that costs relating to the failure will reach at least £175 million.