Morgan Stanley may sell all or part of its India-based back-office unit to an Indian company like Infosys or Wipro, according a report in India’s Economic Times newspaper, which quoted unnamed sources “familiar with the development.”

The unit — worth an estimated $150 to $200 million, according to the newspaper — handles IT development for the bank as well as finance and accounting-related work The unit employs roughly 2,000 people in Mumbai and Pune, supporting Morgan Stanley’s global operations. The unit is also involved in knowledge processing work, such as equity research, financial modelling and portfolio analysis.

Morgan Stanley has been hard by the recent financial crisis, reporting $2.4 billion in losses over its last three quarters and substantially lower revenue.

For the bank — as for any other firm looking to sell a captive unit — a sale would not only raise cash, but would also turn the Indian back office unit into a variable expense.

“There has been a trend recently of some of the leading global firms selling either the complete or a part of their in-house back-office operations in India, in an attempt to reduce costs,” said Celent analyst Anshuman Jaswal, who is based in Bangalore. “This provides them with greater flexibility and provides a variable element to their cost structure.”

For example, in 2008, Citigroup sold its back-office unit to Mumbai-based Tata Consultancy Services Ltd. In May of this year, Fidelity Investments was reported to be considering the same but finally decided against it after much deliberation, said Jaswal. American Express was reported to be considering a sale of its back-office just last month.

Much impetus comes from the recent economic downturn, Jaswal told Securities Industry News. However, there is also an evolution happening in the business process and knowledge process outsourcing industries.

“Multi-national companies are realizing that they can achieve the standards required in their back-office operations without having their own active involvement,” he said.

The reason is that Indian vendors such as Infosys and Tata have expanded their capabilities and have developed solid records and reputations serving the financial industry.

“There is no compromise involved in terms of service levels and quality standards, while having a reduction in costs at the same time,” he said.