Oh so true. I have worked with various banks, and that is precisely what happens.
Especially the part about "kill off internal knowledgeable staff, so changing back is impossible".
It seems absurd, but I have seen interviews for "new' external outsourced folk actually occurring over Skype with a second person sitting next to the interviewee audibly whispering answers to questions.
I have tried to take part in "meeting" which appear to be in an outdoor market in India, complete with market sellers yelling in the background.
Not to mention the language challenges.
Some of this would be fine, if it is a lot cheaper.
But it's not. Certainly in a bank where I recently worked, the internal charge rate for on offshore contractor was pretty close to an onshore one. This is surely insane.
The overhead for the translation process (the banks internal standards to the outsource group's standard) was ridiculous - and charged to the customer.
And amusingly, the outsource group considered its staff completely replaceable. "Suresh is away [has left], Jael will be doing it", er no he won't, at least not efficiently, certainly not for a while.
I have yet to have a good experience with outsourcing.
Mind you, I'm outsourcing to a London group at the moment, from Sydney, so I guess I should not be so critical. (Of course I do actually follow their standards, speak the same language, and I'm cheaper than a local Londoner).