Banks must redesign operating models around AI to meet 'Viksit Bharat' goals: Report
New Delhi, Aug 11
India's banking sector must fundamentally redesign operating models around artificial intelligence while sustaining asset growth at nearly 3.5-4 percentage points faster than nominal GDP to support the country's Viksit Bharat goals, a report said on Tuesday.
The report from Boston Consulting Group, in association with the Federation of Indian Chambers of Commerce and Industry and the Indian Banks' Association said India's banking return on equity (ROE) places it among the top performing countries leading to the recent flux of FDI in the sector.
After a decade in which bank advances largely tracked nominal GDP growth, the sector has begun to outpace GDP growth, creating the momentum to achieve its $30 trillion economy backed by about $45 trillion in banking assets by 2047.
In order to leverage that opportunity banks have to move beyond digitisation and focus on three strategic imperatives: "democratise credit affordability, unlock productivity and build risk muscle beyond credit," the report said.
Access to formal credit has expanded significantly, with retail bureau coverage increasing from 45.5 crore to 78.9 crore borrowers, while MSME bureau coverage doubled from 2 crore to 3.9 crore borrowers over the past five years, the report noted.
Operating and collection costs together account for 40-50 per cent of the cost to serve, making affordability a greater challenge than credit risk particularly for small-ticket retail products.
AI-enabled lending journeys can automate document processing, underwriting and collections, helping reduce processing costs and improve customer experience.
Despite a decade of digitization, banks have seen limited productivity gains, with cost- to-income ratios remaining elevated and technology investments continuing to rise.
AI can reshape banking operations by automating complex, unstructured work and enabling employees to focus on higher-value activities across technology, HR and customer advisory functions.
— IANS
Reader Comments
Interesting report but I'm cautiously optimistic. I work in a public sector bank and the talk about AI transformation has been happening for years. The real challenge is training our existing workforce and upgrading legacy systems. Also, what about data privacy and cybersecurity? If we're going to rely so heavily on AI, we need strong safeguards to protect customer information. 🤔
As an expat working in Mumbai, I've seen the Indian banking sector evolve rapidly. The fact that retail bureau coverage went from 45.5 crore to 78.9 crore borrowers is genuinely impressive. But the report rightfully points out that digitization alone hasn't improved productivity - many branches still have long queues and manual processes. AI could be the game-changer here, but implementation will be key.
The target of $30 trillion economy with $45 trillion in banking assets by 2047 sounds ambitious but doable if we play our cards right. What worries me is whether AI adoption might lead to job losses in the banking sector. We have millions of young Indians entering the workforce - can we balance automation with employment? The report talks about employees focusing on higher-value activities, but the transition needs to be handled carefully.
Having compared banking services between India and the US, I must say Indian banks have come a long way. The focus on "democratise credit affordability" is particularly important - the cost to serve being 40-50% for small-ticket products is a huge barrier. AI-powered lending journeys could genuinely help rural and semi-urban customers who are still excluded from the formal credit system. Let's hope the regulators support this transformation with clear guidelines. 🇮🇳
S We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.