Morgan Stanley may exit back-operations in India

U.S. bank Morgan Stanley is exploring the opportunities to exit its
back-office operations in India. The bank, which was bailed out by the
U.S. government, is looking at its options to sell the back-office unit
that does IT development as well as finance and accounting-related
work, reports the Economic Times.

Knowledge Process Outsourcing (KPO), equity research, complex financial
modeling and portfolio analysis are among the work done here.

According to an investment banker, the potential value of the
transaction could be $150-$200 million, in which the KPO operations
have a share of $50 million. These operations employ around 2,000
people, of which 500 are KPO employees. Most of the operations are
based out of Mumbai and a small part out of Pune.

The value of the deal will also depend on the amount of business the
bank will sell. "The annual revenue run rate for Morgan Stanley's
captive operations is $70-$80 million. So, the committed business could
be around $500 million for five years," said a person with knowledge of
the development.

Large Indian IT firms are the expected buyers, some of which already do
development work for the bank. These include Infosys, Wipro and KPO
firm like eClerx, which works for investment banks, travel and retail
industry.

The need to convert fixed costs to variable costs by moving work done
at the captive unit to third party vendors is among the factors which
drive the sale of many captive units. When the work is outsourced to
third party vendors, there is greater flexibility to increase or
decrease work without having to hire a fixed number of employees.