India’s ambition to achieve a $30 trillion GDP by 2047 presents a massive opportunity for the financial services sector, particularly banks. This ambitious goal will require a significant transformation within the banking industry, necessitating strategic adjustments and innovative approaches. This report, “Banking for a Viksit Bharat,” by the Boston Consulting Group (BCG), FICCI, and the Indian Banks’ Association, outlines the key areas where India’s banking system must focus to effectively contribute to the nation’s development journey.

Building a Robust and Inclusive Banking System

India’s banking sector currently boasts a strong foundation characterized by high profitability, robust capital adequacy, and low non-performing asset levels. This provides a solid springboard for propelling the Viksit Bharat mission. However, achieving a $30 trillion economy demands a dramatic expansion of the financial services sector, requiring banks to play an even more pivotal role.

The report highlights the need for banks to undergo structural shifts over the next two decades, focusing on key areas like:

Growing Deposits & Enhancing Asset Quality

As the economy evolves, households are increasingly shifting towards financial assets and formal borrowing channels. This trend necessitates innovative deposit products to meet changing customer needs and preferences. Banks must also adapt their operating models to cater to evolving trends in deposit preferences, like the shift from traditional savings accounts to pension schemes and capital market investments. Furthermore, the report emphasizes the crucial need for creating new deposit pools to facilitate targeted lending, especially for large-scale projects and sectors.

Re-imagining Lending Practices & Expanding Reach

Despite a growing trend in retail lending, particularly in the unsecured segment, India’s unsecured to secured loan mix still lags behind other large economies. This underscores the need for a nuanced approach to extending credit, especially in regions where large populations remain outside the ambit of formal financing channels. The report highlights the necessity for banks to re-imagine their operating models and underwriting capabilities to better serve this segment of the population. This will necessitate the use of data analytics and innovative technologies to assess creditworthiness in previously underserved demographics.

Addressing Productivity & Cost Optimization

While India’s adoption of the India Stack has significantly streamlined digital payments and product sales, it has also brought about increased technology spending, which outpaces income growth. Banks must find ways to optimize costs without compromising on the adoption of emerging technologies like GenAI, which have the potential to streamline processes and improve efficiency. This will require a bold shift in their operating models, potentially breaking free from legacy cost structures and embracing a more agile approach to technological integration.

Harnessing the Potential of Digital Infrastructure

Despite impressive strides in digital maturity, several Indian banks need to bridge the gap in digital capabilities, especially in areas beyond payments. While India Stack has enabled remarkable progress in payment systems, banks still need to harness digital opportunities in other areas like product fulfillment journeys and money insights. This necessitates a sustained investment in technology and infrastructure to expand digital capabilities and leverage the potential of digital solutions to enhance customer experience and generate new revenue streams.

Building Future Capabilities & Embracing Emerging Technologies

The report emphasizes the need for Indian banks to be at the forefront of the emerging technology landscape. This involves embracing technologies like GenAI, addressing cybersecurity risks with a centralized real-time network and specialized talent, and understanding the potential impacts of climate change on operations. These challenges call for a dedicated focus on developing future competencies and embracing a culture of innovation to effectively leverage the transformative potential of technology.

Leveraging Collaborative Efforts for Sustainable Growth

While India’s banking sector possesses significant strengths, achieving the ambitious goal of a $30 trillion economy requires concerted efforts from all stakeholders. The report emphasizes the need for collaborative actions from industry participants, the government, and regulators to foster a more inclusive and resilient banking sector.

Take Away Points

• India’s ambitious goal of achieving a $30 trillion economy by 2047 will necessitate a significant transformation within the banking sector.
• Banks must undergo structural shifts, focusing on growing deposits, enhancing asset quality, optimizing productivity, embracing digital capabilities, and building future competencies.
• A nuanced approach is needed to address challenges like growing household savings, managing asset quality, expanding financial inclusion, optimizing costs, and leveraging digital opportunities.
• Building a future-ready banking sector will require collaborative efforts from industry participants, the government, and regulators.
• A robust and inclusive banking system will play a pivotal role in achieving India’s vision for a Viksit Bharat, ensuring sustained economic growth and prosperity for the nation.