India today stands at a critical turning point in its growth journey. The nation’s vision of Viksit Bharat by 2047 – a developed, resilient, and inclusive India, depends heavily on the strength of its financial system. Banks, NBFCs, and digital lenders will not only serve as intermediaries of capital but also as catalysts for innovation, inclusion, and resilience.
The FIBAC 2025 Report – “Charting New Frontiers” released recently at the FICCI-IBA Annual Banking Conference and prepared alongwith BCG presents a comprehensive blueprint for how India’s banking sector must evolve in the next two decades. It highlights both opportunities and risks, emphasizing four key imperatives: unlocking growth, driving productivity, accelerating digital maturity, and embedding resilience.
Unlocking Growth
India’s banking assets have historically grown in line with nominal GDP, maintaining a ratio of 0.9x. However, achieving the Viksit Bharat ambition requires a multiplier of 1.5x. In other words, bank assets must grow 3–3.5 percentage points faster than GDP, a steep challenge that demands structural shifts.
One concern is the changing shape of bank advances. Over the last decade, corporate funding has steadily shifted away from banks to capital markets, private credit, and alternative financing avenues. Within banks, lending is skewed toward short-term working capital rather than long-term capex. Unless banks step up to fund new infrastructure and sunrise sectors, India risks missing its growth momentum.
On the retail side, India still has a large informal workforce with limited access to formal finance. Yet the share of New-to-Credit (NTC) borrowers in retail loans has been shrinking. At the current pace, universal credit access may take more than a decade. In contrast, MSME lending is showing promise, supported by reforms like GST, Udyam registration, and guarantee schemes. Interestingly, historical delinquency data reveals that NTC borrowers are not structurally riskier than existing borrowers, suggesting that conservative lending is leaving growth potential untapped.
The real challenge lies in underwriting maturity. Top lenders with advanced data capabilities and robust credit filters perform significantly better than their peers. To close this gap, banks must embrace data-driven risk models, alternate data sources, and AI-powered underwriting to responsibly expand lending.
Driving Productivity
Globally, banks have managed to reduce operating costs through digitization. In India, however, the opposite trend is visible. Operating expenses have consistently outpaced income growth, with cost-to-income ratios creeping upward. Despite significant investments in technology, real productivity gains in the past 15 years have been a meagre 1% annually.
This is where AI and Generative AI (GenAI) can be game changers. According to the report, up to 40% of low-value activities from routine back-office tasks to customer support queries can be automated. Beyond efficiency, AI also has the potential to reimagine the banking operating model:
- Front-office: AI co-pilots could enable relationship managers to handle more clients effectively.
- Operations: Straight-through processing and conversational bots could replace manual workflows.
- Risk and Compliance: AI-enhanced monitoring systems could strengthen fraud detection and compliance checks.
However, scaling AI requires more than pilots. Banks must build comprehensive AI strategies, reskill their workforce, and set up governance frameworks to ensure ethical and responsible deployment. Without these foundations, productivity will remain elusive despite high-tech spending.
Digital Maturity
Few countries can match the impact of India’s Digital Public Infrastructure (DPI). Aadhaar, UPI, and QR-based payments have revolutionized inclusion and access, making India a global benchmark in digital financial services. Customers today enjoy seamless, low-cost payments and paperless onboarding.
Yet, when it comes to loans and investments, customers still prefer traditional banks. The irony is that while digital adoption is high, customer experience on bank-owned platforms is often clunky. Processes are lengthy, personalization is minimal, and journeys are riddled with friction.
The next frontier, DPI 2.0, will focus on consent-based data sharing and digital lending. Initiatives like the Unified Lending Interface (ULI) could trigger a “UPI moment” for credit by enabling digital mortgages, easy access to MSME finance, and frictionless retail lending.
Adding to this, GenAI-enabled conversational banking could fundamentally redefine customer engagement. Imagine a world where consumers interact with banks through natural conversations, asking questions, receiving personalized recommendations, and transacting seamlessly without switching between apps. Early signs suggest Indian customers are ready: surveys show two-thirds of users are willing to trust AI-enabled banking services for expense tracking, recommendations, and chat-based support.
Embedding Resilience
As India’s banking system grows in scale, it must also strengthen its ability to withstand shocks. Traditional credit risks are no longer enough to monitor, banks now face climate risks, cyber threats, and geopolitical disruptions.
The report notes that nearly 45% of consumer loan exposure lies in climate-vulnerable areas, underscoring the importance of integrating environmental and economic vulnerability data into lending practices. Similarly, fraud patterns are shifting from new-to-credit borrowers to existing ones, driven by identity theft and organized crime.
Shared utilities like NPCI and credit bureaus have proven the power of collaborative infrastructure. Going forward, new utilities for climate finance, cyber risk, and fraud monitoring could help raise the bar across the sector. But equally critical is building a strong risk culture, one where employees at all levels understand risks, speak up about concerns, and align their decisions with the institution’s long-term resilience.
The Road Ahead
The FIBAC 2025 report concludes with a 9-point agenda for banks, government, and regulators. These include reimagining underwriting with alternate data, fast-tracking DPI 2.0, standardizing KYC norms, and digitizing land records to unlock secured credit.
India’s banking sector is at once profitable, well-capitalized, and globally admired. But sustaining this momentum requires bold action. Growth must be accelerated, productivity reimagined, digital experiences transformed, and resilience deeply embedded.
If these frontiers are successfully charted, India’s banking sector will not just support but actively propel the nation toward its vision of Viksit Bharat – positioning India as a global economic powerhouse by 2047.
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