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Home > Business > Business Headline > Report

BPOs cashing in on sub-prime crisis

Shivani Shinde in Mumbai | November 23, 2007 08:43 IST

The effects of the sub-prime crisis and the resultant slowdown of the US market is evident on the margins of Indian information technology (IT) and IT-enabled Services (ITeS) firms.

However, there is a section of the industry that is actually ramping up some of its processes due to the sub-prime crisis.

Business process outsourcing (BPO) firms such as Firstsource, Pune-based HOV Services [Get Quote], Zenta, Aegis BPO and others have been receiving inquiries from existing as well as new customers for ramping up their account receivables management (ARM) business.

ARM services include functions such as invoice generation, lockbox/remittance processing, cash application/reconciliation, notice presentment, first party collections, delinquency management and bad debt purchase.

"At one level, as overall delinquencies increase, what we expect to happen is that the portfolio of debt, on which collections are to be done, will increase. So, all the issuers of financial instruments will have more debtors from whom they need to collect, therefore, the volume of business available should increase. We should get larger shares of business going forward. But that is something which will happen over a period of time," said Ananda Mukerji, managing director and chief executive, Firstsource.

Sunil Rajadhyaksha, executive director, HOV Services said, "It will take six months for the business from sub-prime affected accounts to flow to the company, as firms normally give 90 to 120 days for disclosure. Only after that the ramp up will happen, if required."

ARM services make up around 20 per cent of HOV Services' total revenue.  While the business effect will be evident only in the next two quarters, companies have reported receiving calls inquiring whether they can ramp up these services in a short term.

The demand is not just from the mortgage players but also from the banking and financial sector, which has been affected due to the liquidity crunch.

Aparup Sengupta, CEO and MD, Aegis BPO said, "Yes, we have had inquiries from most of our existing clients on our ability to ramp up these services. While we do not have any exposure in the mortgage sector, we do have BFSI clients who might have loans in that segment."

Currently, ARM services contribute $25 million annually to the company's revenues. In the next six to nine months, the company expects some of its clients to use their recovery cycle. It is also likely to ramp up the operations by adding a few thousand people.

The third party collection industry is around $18 billion for the year 2007, say analysts. There are over 200,000 people employed under this service in the US.

Many feel that as the market will try and tackle the slowdown in the US market, more and more companies will look at outsourcing services.

Mumbai-based Zenta BPO, which had inquiries from existing customers, also had a few mortgage firms talking to the company for outsourcing.

"While the negative impact of the sub-prime issue is evident and seen, its other impact will be on the clients who will be under pressure to cut costs. Clients have been talking about the volumes of work on the collection side. We do see a clear mandate of these services increasing both from existing as well as new clients," said Jaswinder Ghumman, country manager - India, Zenta.

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