Indian banking a ‘North Star’ amid uncertainties

Indian banks to maintain their profitability and valuation, they need to think boldly about reshaping their business models, embracing disruptive technologies and strengthening their risk management capabilities: Ruchin Goyal, BCG Managing Director

RBI Governor Mr Shaktikanta Das along with other dignitaries at 'FIBAC 2023'

FinTech BizNews Service

Mumbai, November 23, 2023: Boston Consulting Group (BCG) in association with FICCI and Indian Banks’ Association has released a report titled “Winning in Uncertain Times”. As per the report, in the face of escalating geopolitical risks and unprecedented macroeconomic volatility, the Indian banking sector continues to emerge as a beacon of stability and growth on the global stage. Amid global inflationary spirals and plummeting valuations, Indian banks have remained resilient, boasting record profitability, robust credit growth, and a quality book that signals strategic expansion and balance sheet strengthening. 

The report brings to light key valuation and profitability metrics to underline Indian banks’ outperformance vis-à-vis their global counterparts. Since the Global financial crisis, Indian banks have shown higher resilience and outperformed their global counterparts on several metrics.

“Globally, banks are facing unprecedented challenges and uncertainties. The Indian banking industry is the shining star across geographies. However, for Indian banks to maintain their profitability and valuation, they need to think boldly about reshaping their business models, embracing disruptive technologies, and strengthening their risk management capabilities.” said Ruchin Goyal, a BCG Managing Director and Senior Partner, and a co-author of the report.

It further posits five key imperatives that could underpin the continued success of Indian banking in these complex times. Central to these imperatives is the focus on Economic Profit (EP) as a comprehensive measure of profitability and serving as a better indicator of a Bank’s valuation. With banks having higher EP showing nearly double P/B values compared to those with lower EP, the industry can look to anchor their strategic decisions to EP, fostering better risk-reward alignment and ensuring competitiveness in the global market.

A) Chart out the future of distribution:

Over the years, the distribution models have become increasingly digital. However, the significance of physical branch networks in providing personal touch remains crucial. To continue delivering banking at scale with cost-efficiency, banks need to adopt a ‘phygital’ strategy, delivered using open architecture through a network of fintechs, BCs, and DSA. This would include strategically aligning services with the most effective channels tailored to specific customer segments.

B) Boost financial inclusion through digital public infrastructure:

The report highlights India’s rapidly growing Account Aggregator (AA) framework as part of the broader digital public infrastructure. The role of consent-based frameworks is emphasized as AA is posited as a pivotal driver of financial inclusion. With annual consents expected to reach 5bn by 2027, AA is reshaping lending and wealth management by making authenticated data widely accessible. Banks need to put in place capabilities to convert this data into actionable insights for disproportionate gains and creating differentiation.

C) Integrate generative AI into all banking functions:

Generative AI, recognized widely as a path breaking innovation, holds the potential to redefine customer experience, boost efficiency, and provide access to unprecedented frontiers of doing business. While the focus is still on use cases, banks need to extrapolate them to GenAI archetypes. However, it is essential to ensure that teams are equipped with sufficient skills to make the most out of GenAI, while at the same time, being cognizant of the new-age risks this would entail.

Globally, Neobanks and fintechs, with their digital-only approach have not seen as much success as traditional banks. This shows that the primacy of human touch will remain critical. However, banks today need to reinvent the role of branches and adopt a phygital strategy to provide inclusive and personalized banking at scale says Sunil Mehta, Chief Executive, India Banks’ Association

D) Lead the way in risk maturity:

According to the FIBAC’23 survey, only 10% of all Indian banks follow an integrated risk management strategy. The consequent conservative or prime+ focused lending patterns constrain the potential customer base. Banks need to set up dedicated Risk Centers of Excellence and evolve risk models, especially in the era of digital public infra-led data proliferation and AI-enabled processing of this data. Such initiatives are likely to prove pivotal in advancing the banks’ journey towards risk maturity.

E) Prepare for climate change:

The report highlights the dual-edged sword of climate change for Indian banking: a $2.5tn green financing opportunity, and a looming risk as 50%+ of the total bank credit is allocated to climate-vulnerable sectors. This calls for modifying operating models to include climate risk and incentivizing eco-friendly financing, while at the same time identifying newer participation models to foster a more collaborative approach. Indian banks can also take a cue from their global counterparts to design novel solutions and reimagine key business functions to turn climate change into a viable business opportunity.

Over the last 3 decades, the Indian banking sector has been a driving force behind the India growth story. The country now stands at a focal point in its economic journey. While looking to address its legacy trait of credit under-penetration and envisioning a $30tn economy by 2047, the next couple of decades warrant Indian banks to play a pivotal role in boosting credit growth.

“If the Indian banking sector today reflects resilience and stability, it is because of the comprehensive reforms strategy pursued by Government and RBI. Be it dealing with NPAs, recapitalisation of banks, new avenues for resolution via IBC, creation of National Bank for Financing Infrastructure and Development (NABFID) and National Asset Reconstruction Company Limited (NARCL) – all these have been very strategic and timely interventions. To retain this position of strength and to guard itself from global market turbulence, Indian banking industry needs to prepare itself well. This report provides a set of actionables that all banks must integrate into their overall strategy to continue to move ahead on the road towards high and sustainable growth” said Ms Jyoti Vij, Additional Director General, FICCI.

A concerted effort of industry participants and regulators will be critical to facilitate this – key actions include:

  • Banks continuing to remain profitable
  • Consolidation of entities to create giant financial institutions
  • Consistent credit flow across segments – retail, SME, corporate
  • Conducive, growth-oriented regulatory environment

You can access the report here:

About Boston Consulting Group

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders — empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.


Established in 1927, FICCI is the largest and oldest apex business organization in India. Its history is closely interwoven with India’s struggle for independence, its industrialization, and its emergence as one of the most rapidly growing global economies. 

A non-government, not-for-profit organisation, FICCI is the voice of India’s business and industry. From influencing policy to encouraging debate, engaging with policy makers and civil society, FICCI articulates the views and concerns of industry. It serves its members from the Indian private and public corporate sectors and multinational companies, drawing its strength from diverse regional chambers of commerce and industry across states, reaching out to over 2,50,000 companies.   

FICCI provides a platform for networking and consensus building within and across sectors and is the first port of call for Indian industry, policy makers and the international business community.

About IBA

Indian Banks’ Association (IBA) the only advisory body for banks in India, was set up in 1946 as an association to discuss vital issues of Banks. The onward journey of IBA has been progressive and enriched by the development of India’s banking sector since independence.

Having bestowed with the status of the “torch bearer” for the banking industry, IBA has initiated several path breaking policies during the last seven and a half decades which have eventually transformed the banking sector. Over a period of time IBA has evolved as the “Voice of the Indian Banking Industry”. At present IBA has 246 Members, 135 Ordinary Members comprising Public, Private, Foreign and Cooperative Banks and 111 financial institutions and Banking related organizations as Associate Members.

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