Unlocking Viksit Bharat: Why India’s Banking Sector Needs to Outpace GDP Growth by 3-3.5% – Insights from the BCG-FICCI-IBA Report

The recently released report by Boston Consulting Group (BCG), in collaboration with FICCI and the Indian Banks’ Association, highlights a pivotal moment in India’s journey toward becoming a global leader. Titled “Charting New Frontiers,” the report outlines key areas where India’s banking and financial sector must evolve to achieve its ambitious ‘Viksit Bharat Mission.’

A Moment of Opportunity

India stands on the brink of significant growth over the next two decades, but to capitalize on this potential, the banking sector must grow its assets at a pace faster than the country’s nominal GDP. This is crucial in a world marked by shifting trade dynamics, supply chain challenges, and geopolitical risks. The rapid advancements in artificial intelligence and changing consumer needs add layers of complexity to existing financial structures.

Key Recommendations for Banks

1. Building Resilience
   Banks must expand their focus beyond traditional credit risks. They need to manage emerging threats like climate change and cyberattacks more effectively. Collaborating on shared resources, like credit bureaus, can elevate standards across the sector. New frameworks for emerging risks, especially in climate finance, will be essential.

   Ruchin Goyal from BCG notes that the banking sector can harness alternative data to reach underserved markets, providing vital credit access to households and small businesses.

2. Enhancing Credit Growth
   The lending landscape has shifted significantly. Corporate loans have decreased, moving towards alternatives like capital markets. While retail lending remains low, there’s potential for banks to safely expand their offerings, especially in the MSME sector. Enhanced digital payment systems, such as UPI, have fostered greater financial inclusion, making it feasible to lend to previously excluded groups.

   Data shows that well-managed loans to new borrowers can perform just as well as those from established customers. This insight can drive responsible lending practices.

3. Boosting Productivity
   The banking sector has seen a rise in operational expenses contrary to global trends. Despite investments in technology, productivity gains have been modest. But advancements in AI can dramatically automate low-value tasks. There’s room for banks to streamline operations by integrating AI into their processes.

4. Advancing Digital Maturity
   While non-bank apps provide a smoother user experience, many people still prefer banks for loans. Banks face user adoption hurdles, but AI can help create seamless, personalized experiences. The initiative for Digital Public Infrastructure (DPI) 2.0 aims to simplify complex transactions, enhancing user engagement.

   Mr. C S Setty from the Indian Banks’ Association emphasizes the need for seamless, trust-oriented digital experiences that fuse various service channels.

The Path Ahead

India’s banking sector has a strong foundation. However, to truly realize the Viksit Bharat vision, banks must accelerate their transformation. This includes diving into untapped credit segments, harnessing AI for productivity, and embedding risk management into their core strategies.

Collaboration among banks, regulators, and the government is crucial. Regulators should support banks in providing corporate credit, while the government can facilitate the necessary digital infrastructure.

According to recent surveys, public trust in banking is rising, reflecting optimism about digital advancements. This shift presents a unique moment for Indian banks to redefine their roles, pushing towards a future of growth and inclusion.

For further insights, you can read the full report here.

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Viksit Bharat, Indian banking, BCG, financial sector, AI/GenAI