3,000 Infosys Employees May Lose Jobs Due to RBS Contract Cancellation    

Bengaluru: The cancellation of a contract by Royal Bank of Scotland (RBS) has turned out to be a major blow to as many as 3,000 employees at Infosys. The scrapping of the contract will also affect revenues of Infy for the year by over $40 million. RBS had awarded a five-year euro 300-million IT contract to Infosys and IBM for Williams & Glyn (W&G). But, RBS has decided to cancel the contract as it’s planning to float a separate standalone UK bank, Williams & Glyn.

Most of IBM’s W&G contract was to be delivered out of the UK, while Infosys was to get a major chunk of the contract to the tune of $200 million.

After the RBS announcement, Infosys said in a statement: “Infosys has been a W&G programme technology partner for consulting, application delivery and testing services, and subsequent to this decision (of not creating a separate subsidiary), will carry out an orderly ramp-down of about 3,000 persons, primarily in India, over the next few months.”

The low interest regime in developed markets is impacting financial services companies. Adding to the woes, Brexit is also making it worse for many banks, particularly the ones based in UK like RBS.

Though Infosys didn’t give any number on the possible loss, some analysts, who did not want to be named, estimated the loss at around $40-50 million for 2016.

This loss is likely to result in lower guidance. In July , Infosys reduced revenue guidance for the year to 10.5-12 percent, from 11.5-13.5 percent in April. The W&G loss may not be included in the July guidance. Based on the RBS contract, Infosys was hoping achieve a 15 percent growth on year-on-year basis for next three years.

The low interest regime in developed markets is impacting financial services companies. Adding to the woes, Brexit is also making it worse for many banks, particularly the ones based in UK like RBS.

The banking verticals of IT services companies are reeling under pressure. Cognizant has already down its guidance for two times in the 2016. The challenges in the financial services space are the prime reason. The last quarterly results of Cognizant had factored in a $40-million reduction in guidance because of Brexit.

RBS suffered a 2billion-pound loss in 2015, its eighth year of consecutive losses due to restructuring and litigation costs. The bank will pay the price for years of mismanagement. Brexit is also impacting the RBS decision to the scrap the Williams & Glynn spinoff. Thus, cost cutting remains the overriding priority for RBS.