Outsourcing to India: A ticking time bomb under the banks’ digital strategy?

Over the past decade, several Nordic banks have placed a significant part of their digital foundations with Indian IT providers. The decision has been driven by the desire for lower costs, access to a large talent pool and scalable delivery models. But recent political and market dynamics, combined with new regulation, are upending the outsourcing landscape.

This makes it a critical moment for bank leadership to reassess supplier strategies and determine whether they are truly robust – or whether they risk being exposed should Indian geopolitics begin to affect their providers. What happens if the Indian government starts influencing what Indian IT suppliers may deliver, and how they may operate?

Geopolitics: When Modi embraces Putin and Xi – what does that mean for Danish banks?

India’s Prime Minister, Narendra Modi, has in recent years clearly signalled a strategic alignment with both Russia and China – most recently through official meetings with Vladimir Putin and Xi Jinping, including photos of Modi hugging Putin at the same time Russia was bombing a hospital in Kyiv. Cooperation is not merely symbolic: India has significantly increased imports of Russian oil and consistently refused to condemn Russia’s invasion of Ukraine despite strong pressure from Western countries.

India also works closely with China in regional forums such as the Shanghai Cooperation Organization, where the two powers discuss technology, energy and security. At the same time, India maintains a policy of strategic independence, prioritising its own interests even when these conflict with Western values and alliances.

These moves have raised concerns among Western policymakers and investors. For Danish banks with data and critical business systems located in India, or delivered using Indian resources, outsourcing is no longer only about price and talent, but also about suppliers’ geopolitical exposure, legal constraints and future stability.

Alongside this, the EU has tightened requirements for data security and business continuity. With NIS2 and DORA, strict rules now govern digital sovereignty, data localisation and transparent governance. Banks must be able to demonstrate that critical systems and data can be moved “home” quickly and securely if an international conflict or sanctions hit their suppliers or regions.

Traditionally, outsourcing to India has offered scale, but today banks risk being locked into supplier relationships that do not support regulatory obligations or best practice for resilience.

Operational challenges and hidden costs become visible

It is not only global politics that should prompt banks to read their outsourcing contracts with new eyes. Research from PA Consulting and Whitelane shows that only 25% of Nordic financial institutions cite talent access as the main driver for outsourcing – and hidden costs are growing as customers experience high turnover in Indian teams. This leads to loss of knowledge, delays, compliance gaps and weakened quality in business-critical systems.
High turnover is one reason insourcing is on the rise in the Nordics, as organisations seek faster time-to-market and better control of intellectual property. One in five Nordic companies now plans to insource more than before.

Financial and business-critical consequences

Banks’ outsourcing choices directly influence reputation, governance and investor confidence. If outsourcing to India is hit by sanctions, political instability or suppliers’ own strategic interests, digital operations can quickly become insecure. Increasing regulatory complexity also heightens the risk of compliance breaches, fines and potential licence loss.
At the same time, a bank’s brand and customer trust can come under pressure when suppliers in a country aligning itself with actors like Russia and China gain access to business-critical data and platforms.

What companies with Indian suppliers should prioritise now:

• Map concrete dependencies on Indian suppliers and assess the risk profile. Review systems and data involving Indian resources and analyse potential political exposure.
• Demand exit strategies and data localisation. Build migration plans and compliance clauses into all contracts.
• Invest in local innovation, skills and EU-based supplier partnerships. Selective insourcing and Nordic partnerships can improve stability, governance and continuity.
• Strengthen audit and governance. Conduct regular supplier reviews and involve experts with EU regulatory understanding.
• Include reputation and investor expectations in sourcing strategy. Assurance around data, compliance and supplier stability is increasingly important for customers and shareholders.

The key question is not whether new geopolitical shocks will come, but when.

And when they do, it will be too late to start mapping dependencies, renegotiating contracts or moving critical platforms. The banks that take back control now will be the ones that retain customer trust when others must explain why they did not see it coming.

Read the article in Computerworld in Danish.