India at a critical inflection point; next two decades to drive transformation: FIBAC

India stands at a critical inflection point in its growth trajectory as the next two decades could transform current momentum into sustained global leadership under the Viksit Bharat Mission, a joint report by FIBAC said on Monday.

Achieving this will require a robust, innovative, and resilient banking sector that can fund inclusive and sustainable growth, it added.

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A new report titled “Charting New Frontiers” was released jointly by Boston Consulting Group (BCG), the Federation of Indian Chambers of Commerce and Industry (FICCI), and the Indian Banks’ Association (IBA).

The report further warned that for India to achieve its long-term aspirations, banking assets need to grow 3 to 3.5 percentage points faster than nominal GDP.

It highlights that while the sector is currently profitable, well-capitalized, and highly valued, a decisive shift across credit growth, productivity, digital maturity, and resilience will be essential to fuel inclusive and sustainable economic growth.

The report further urged banks to move beyond credit risk management and prepare for climate, cyber, and geopolitical risks.

“Shared utilities like NPCI and credit bureaus have already raised sectoral standards; similar utilities for climate finance, fraud detection, and cyber monitoring are recommended to safeguard systemic stability,” it said.

While customers find UPI and non-bank apps more user-friendly, they still prefer banks for loans and investments. Friction in digital banking journeys, however, continues to limit adoption, the report mentioned.

Despite a decade of digitization, the banking sector’s opex-to-assets ratio has risen by 26 basis points, bucking the global trend of declining costs. Productivity gains have been limited to about 1% annually over 15 years.

According to the report, AI and GenAI could automate up to 40% of low-value tasks, unlocking efficiency and allowing banks to redeploy capacity to higher-value activities.

On the positive side, MSME lending has shown promise, driven by formalization measures such as GST, Udyam registration, proliferation of UPI, QR codes, and guarantee schemes.

The report calls for banks to embrace alternate data and AI to responsibly expand lending, particularly in sectors critical to India’s future such as infrastructure, manufacturing, and renewables.