Material Insights · Understanding the Material World

Finance: banking, insurance, markets and Software and IT services

Banks, insurers and payment systems run on software, and they are in turn the largest client group of India's IT firms: banking, financial services and insurance were about a third of TCS revenue in Q2 FY26, while a single vendor failure in 2024 cut off payments at hundreds of small banks.

Finance: banking, insurance, markets (industry) and Software and IT services (industry): 5 relationships.

How they are linked

1. Buys from

Physical flow · ₹4.3 per ₹100 · Finance: banking, insurance, markets buys from Software and IT services

Core banking, payments, trading and policy systems are bought or outsourced, so IT services are one of finance's main purchased inputs.

  • ₹4.3 of every ₹100 of Finance output, all rounds (India 2022)
  • ₹2.4 bought directly

The share is modest in rupee terms because finance's main cost is interest, but almost every transaction passes through purchased software. Monthly price indices are unrelated (correlation about 0.00, 0.11 over 12 months, US PPI), since IT contract prices are set over multi-year deals.

Sources: OECD; Material Insights (World Bank, FRED, IMF data)

2. Industry input

Physical flow · Criticality 5 of 5 · Software and IT services to Finance

Twelve enterprise types in finance depend on software and IT services; central banks, regulators, payment operators and card networks are rated 5 of 5 because their settlement and switching systems are software.

Exchanges, clearing houses and core banking vendors are rated 4, commercial banks and insurers 3. Asset managers, brokers and non-bank lenders are rated 2 because they can switch platforms more easily.

Enterprise types that depend on it:

  • Central banks and financial regulators: settlement and supervisory systems (criticality 5 of 5)
  • Payment system operators and card networks: switch software (criticality 5 of 5)
  • Exchanges, clearing houses and depositories: trading and clearing systems (criticality 4 of 5)
  • Core banking and financial software vendors: software development and support (criticality 4 of 5)
  • Credit bureaus, rating agencies and market-data providers: analytics platforms (criticality 4 of 5)
  • Reinsurers: catastrophe modelling (criticality 4 of 5)
  • Commercial banks: core banking and apps (criticality 3 of 5)
  • Life and general insurers: policy and claims systems (criticality 3 of 5)
  • Fintech payment and investment apps: app development (criticality 3 of 5)
  • Non-bank lenders (NBFCs and microfinance): lending platforms (criticality 2 of 5)
  • Asset managers, mutual funds and pension funds: portfolio systems (criticality 2 of 5)
  • Investment banks and brokers: trading platforms (criticality 2 of 5)

Sources: Material Insights

3. Largest client vertical

Transition · Strong · Financial firms are the largest client group of a leading Indian IT firm

Banks and insurers spend heavily on technology and outsource much of it, so they are the largest client vertical at TCS, India's biggest IT services firm.

  • 32.2% share of TCS revenue from banking, financial services and insurance, Q2 FY26
  • US$ 7,466 million TCS revenue in Q2 FY26

No other TCS vertical comes close: consumer business was 15.3% and life sciences and healthcare 10.5% in the same quarter. A slowdown in bank technology budgets therefore shows up in Indian IT growth.

Sources: Tata Consultancy Services

4. IT outsourcing rules

Policy · High in India · RBI sets terms for how lenders buy IT services

The RBI holds banks responsible for the IT they outsource, so its rules decide contract terms, audit rights and how far a lender may depend on one vendor.

The Master Direction on Outsourcing of IT Services, issued in April 2023 and in force from October 2023, covers banks, larger NBFCs and credit bureaus. It requires a board-approved policy, regulator inspection rights over the vendor, a review of concentration risk and an exit plan, which raises the compliance work vendors must offer.

Sources: Reserve Bank of India

5. Vendor concentration

Shared risk · Strong · A failure at one vendor stops many lenders

Small banks share a few technology providers, so an outage or attack at one provider hits all of them at once.

  • about 200 to 300 local banks cut off from NPCI retail payments after the C-Edge ransomware attack, mid 2024

When C-Edge Technologies, which serves cooperative and regional rural banks, was hit by ransomware, NPCI temporarily isolated it from its retail payment systems, and customers of those banks lost access to services such as UPI until systems were restored. The episode showed in practice the concentration risk that the RBI's 2023 outsourcing rules require lenders to assess.

Sources: Reserve Bank of India; MediaNama

For investors

Key learnings

  1. Financial firms are the largest client vertical at TCS, about a third of revenue in Q2 FY26, so bank technology budgets drive Indian IT earnings.
  2. Finance spends about ₹4.3 per ₹100 of output on IT, small in rupees but critical: payment operators and central bank systems are rated 5 of 5.
  3. Stricter RBI outsourcing rules and the 2024 ransomware outage are likely to favour vendors that can meet audit, exit and resilience demands.

What to track

  • BFSI revenue growth at large IT firms: Faster growth signals rising bank tech spending (Quarterly · company results)
  • Bank and insurer technology budgets: Cuts tend to show up in IT services growth (Annual · bank reports, industry surveys)
  • Payment system outages and cyber incidents: Rising incidents raise compliance costs and vendor switching (As reported · RBI, NPCI, CERT-In)

For policymakers

Key learnings

  1. Payment and settlement systems depend wholly on software, so IT resilience is now a financial stability issue.
  2. The C-Edge attack showed that small banks sharing one vendor fail together; concentration limits and exit plans matter most for them.
  3. Banking and insurance clients are the largest vertical for leading IT exporters such as TCS, so foreign bank spending and regulation affect India's services exports.

What to track

  • Outsourcing inspections and penalties: Shows how strictly the 2023 rules are enforced (As issued · RBI)
  • UPI and NPCI system downtime: Measures resilience of the shared payment stack (Monthly · NPCI)
  • IT services exports to financial clients: Signals demand in India's largest services export (Quarterly · NASSCOM, company results)

India

India is both the user and the supplier: its banks and payment systems depend on domestic IT firms, and those firms earn a large share of revenue from banks and insurers worldwide (32.2% at TCS in Q2 FY26).

Sources

  1. OECD Input-Output Tables 2025 edition, India 2022, OECD
  2. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  3. Industry map: Finance: banking, insurance, markets, Material Insights (2026)
  4. Q2 2025-26 Fact Sheet, Tata Consultancy Services (2025)
  5. Master Direction on Outsourcing of Information Technology Services, Reserve Bank of India (2023)
  6. NPCI blocks C-Edge after ransomware attack, local banks impacted, MediaNama (2024)