INCLUSION & RESILIENCE OF THE INDIAN BANKING ECOSYSTEM

FIBAC 2025, themed “Charting New Frontiers,” took place August 25–26 at Hotel Trident, Mumbai, bringing together banking leaders, regulators, and global experts for critical dialogue on India’s financial future.

With BCG as Knowledge Partner, the conference spotlighted AI, digital banking, and risk resilience, culminating in a 9-point action agenda—urging faster DPI 2.0 adoption, standardized KYC, and digitized land records to unlock credit.

The FIBAC 2025 conference commenced with a traditional lamp lighting ceremony, symbolizing knowledge, progress, and the collaborative spirit of India’s banking and financial sector. Marking the beginning of impactful discussions, the ritual honored the industry’s legacy while setting the stage for innovation and forward-looking transformation.

Shri Sanjay Malhotra, RBI Governor, set the tone, emphasizing innovation balanced with stability—paving the way for a stronger, smarter banking ecosystem.

Economic Resilience and Fundamentals

India’s economy demonstrates robust macroeconomic fundamentals, with nearly 8% CAGR growth over the last four years post-COVID, low inflation averaging 4.9% and hitting 1.6% in July, fiscal deficit reduced to 4.4% of GDP, and healthy corporate and bank balance sheets featuring strong profitability, solvency, liquidity, and asset quality. External sector stability is evident from a current account deficit of 0.6% of GDP, record service exports, remittances, and forex reserves covering 11 months of merchandise exports at $695 billion. These achievements stem from prudent fiscal-monetary policies, structural reforms, infrastructure scaling, and improved governance amid global challenges like geopolitical tensions.

“We need to push the frontiers of growth and seize the opportunities coming our way. Indian economy has expanded many folds, and it continues to be a symbol of resilience and hope,” he asserted.

Monetary Policy Priorities

Monetary policy prioritizes price stability while supporting growth, as seen in repo rate cuts during pre-COVID slowdowns and recent benign inflation periods. Proactive RBI and government measures have contained inflation shocks from food prices, oil volatility, and supply disruptions, anchoring expectations and bolstering consumption and investor confidence.

“We are in the process of consolidating all the regulations for various categories of regulated entities. In our pursuit of making principle-based framework, we have given autonomy to the board of the respective entities to frame policies,” said Mr Malhotra.

Regulatory Framework Evolution

RBI regulates banks and NBFCs, which meet 73% of credit needs (53% from banks), balancing safety and growth via five principles: principle-based over prescriptive rules, proportionality, impact analysis, consultative approach (e.g., Connect2Regulate platform), and evidence-based agility. Recent actions include revising urban co-op bank risk weights, NBFC provisioning, priority sector lending, LCR runoff factors (releasing 6% liquidity), and frameworks for AIFs, co-lending, project finance, and gold loans; future focus covers Basel III implementation by April 2027, ease of doing business via consolidated returns and board autonomy, credit expansion, and intermediation cost reduction through a regulatory review cell.

“I look forward to working with regulated entities to improve their efficiencies and effectiveness of our financial sector to ensure the benefits reach the people of our nation. On the demand side, I would urge the industry to invest boldly and champion the entrepreneurial spirit that defines our nation. Banks and corporates should come together and drive the animal spirit to create an investment cycle which is important at this juncture,” RBI Governor added.

Banking Sector Imperatives

Banks must advance financial inclusion by strengthening business correspondents (BCs) for rural reach, accelerating MSME credit via ULI, and conducting RE-KYC camps for Jan Dhan accounts. Customer centricity demands seamless service, CKYCR usage, reduced grievances via empowered ombudsman frameworks, and behavioral training; technology adoption like AA, ULI, Praha, AI/ML is essential for credit enhancement, cost reduction, and decision-making.

Shared Vision Forward

Regulators and industry share goals of financial stability enabling sustainable growth toward Viksit Bharat, urging bold investments, entrepreneurial spirit, and decisions benefiting the vulnerable per Gandhi’s talisman.

BCG proudly served as Knowledge Partner for FIBAC 2025, marking the 14th year of collaboration with FICCI and IBA in shaping India’s premier banking. BCG launched the landmark report, helped drive actionable insights on resilience, innovation, and the future of Indian banking.

India stands at a pivotal moment—its banking sector, now profitable and well-capitalized, must evolve to fuel the Viksit Bharat vision. To lead globally, banks must embrace four frontiers: digital transformation, financial inclusion, risk resilience, and sustainable finance. This BCG-FICCI-IBA report, launched at FIBAC 2025, charts the path: from scaling innovation to empowering underserved markets.

The Indian banking industry has shown strong performance in recent years, with improved profitability, stable asset quality, and rising valuations—supported by digital adoption and sound risk management. Recent insights suggest this momentum will continue into FY26, driven by healthy credit growth, better margins, and a shift toward retail-focused NBFCs. With macro conditions stabilizing, the sector is well-positioned to support India’s broader economic ambitions.

To achieve Viksit Bharat, banking assets must grow 3–3.5 percentage points faster than nominal GDP—ensuring credit keeps pace with India’s rising economic ambitions. This acceleration is critical to fund infrastructure, MSMEs, and inclusive growth, positioning banks as key enablers of national development.

Banks must harness alternate data, embed risk management, and champion entrepreneurial investments to fuel inclusive growth and global competitiveness. Regulators and industry align on stability enabling sustainable expansion.

The Indian banking sector is strong—profitable, well-capitalized, and poised for leadership. To seize this moment, it must chart new frontiers: unlocking growth, boosting productivity, advancing digital maturity, and embedding resilience. These four pillars will power the next phase of financial progress and national ambition.

Productivity gains averaged only 1% annually over 15 years despite digitization, necessitating AI/GenAI to automate 35-40% of low-value activities. Success requires AI strategy, modular architecture, ethical governance, change management, and staff reskilling. GenAI enables agentic evolution beyond efficiency into decision-making and human-digital synergy

BCG identifies four priorities: expanding credit into untapped segments like MSMEs, unlocking productivity via Generative AI (GenAI), delivering world-class digital experiences, and strengthening risk culture. These address structural challenges, including a significant MSME credit gap and limited productivity gains despite digital advances.

AI adoption could reshape 35-50% of banking roles, posing challenges to formal jobs while boosting efficiency beyond traditional roles. GenAI emerges as key for agentic evolution, enhancing decision-making, human-digital synergy, and next-gen tech like DPI 2.0.

NBFC provisioning, priority sector lending, LCR runoff factors (releasing 6% liquidity), and frameworks for AIFs, co-lending, project finance, and gold loans; future focus covers Basel III implementation by April 2027, ease of doing business via consolidated returns and board autonomy, credit expansion, and intermediation cost reduction through a regulatory review cell.

Banks must expand beyond credit risk to tackle emerging threats—climate, cyber, and geopolitical—by building robust systems to measure, monitor, and mitigate them. Creating new utilities in climate finance and transaction monitoring (AML, fraud) will strengthen resilience and trust in a fast-evolving landscape.

India stands at a pivotal moment—resilient amid global uncertainty and rising as a leader in AI, renewables, defence, and digital tech.A recent survey undertaken by FICCI on Global Risks and opportunities, shows strong business confidence, with Indian industries seeing the nation as a future global powerhouse.Backed by innovation and inclusion, India isn’t just keeping pace—it’s shaping what’s next.

“Prudence must always remain the foundation of Indian banking, but ambition must be the driver. Our banks cannot just finance growth; they must engineer it. The future of finance is not to follow the economy. The future of finance is to lead it. Indian banking sector will further support the growth of our industries and support enterprises as we weather the current storm,” noted President FICCI.

Mr. C.S. Setty, Chairman of IBA and SBI, emphasized that India’s moment demands accelerated, inclusive, and sustainable growth. The financial sector must act as a multiplier—driving credit, innovation, and access to empower every part of the economy. Charting new frontiers isn’t optional—it’s essential.

Mr. Setty highlighted that banks must fuel India’s growth by backing innovation, lending to emerging sectors, and financing long-term capex. Their role goes beyond capital—they’re catalysts for transformation.

“With a favourable demographic dividend, robust digital infrastructure, high growth potential, and a clearly articulated national vision under Viksit Bharat, India stands at an inflection point. This is the moment to accelerate inclusive growth, enhance global competitiveness, and shape a prosperous and sustainable future,” he added.

Mr. Atul Kumar Goel, IBA CEO, highlighted India’s resilience and strong domestic growth drivers as key to achieving Viksit Bharat. He emphasized RBI’s forward-looking role—through initiatives like the National Strategy for Financial Inclusion (NSFI) 2025–30—in deepening access, driving innovation, and building a secure, inclusive financial future. Steady progress, powered by policy and purpose, is paving the way.

Panel discussion Consumer of the future: A story of changing India, Moderated by: Ms Kanika Sanghi, Partner and Director, Centre for Consumer Insight, BCG Panelists• Mr Binod Kumar, MD & CEO, Indian Bank• Mr Nidhu Saxena, MD & CEO, Bank of Maharashtra • Dr N Kamakodi, MD & CEO, City Union Bank • Mr Parag Bhise, Executive Director & CEO, Nucleus Software • Mr Anubrata Biswas, MD and CEO, Airtel Payments Bank• Mr Aditya Mandloi, MD, Head – Wealth & Retail Banking, India & South Asia, Standard Chartered Bank.

India’s consumer landscape is rapidly evolving, driven by a rising affluent middle class and a Gen-Z digital-first mindset. This shift is transforming how people save, spend, and invest, increasingly favoring personalized and digital-first financial experiences.

Household savings are progressively moving toward capital markets, requiring banks and financial institutions to rethink how they serve all segments—from first-time investors to ultra-high-net-worth individuals—by offering global-level wealth management, cross-border access, and tailored advice.

The panel highlighted the importance of digitalization and experience as core factors shaping consumer expectations. Consumers now demand fast, intuitive, and personalized services that go beyond traditional banking products to become holistic financial experiences.

A notable trend is the democratization of investment portfolios, with increased willingness to explore multiple asset classes. Consumers are becoming more sophisticated and confident in managing their finances themselves, supported by technology platforms and increased financial literacy.

The banking industry is expected to adopt a more customer-centric approach, focusing on addressing unmet consumer needs, pain points, and leveraging technology to enhance accessibility and convenience, while still maintaining the essential human touch.

These insights underline the necessity for banks to pivot towards digital innovation, personalized service, and inclusivity to meet the future expectations of India’s diverse and evolving consumer base

Panel discussion on Next-gen tech: Building stable foundations for a vibrant banking industry, Moderated by: Mr Vipin V, MD & Partner, BCG, Panelists• Mr Sanjay Vinayak Mudaliar, Executive Director, Bank of Baroda • Mr P R Rajagopal, Executive Director, Bank of India • Mr Brajesh Kumar Singh, Executive Director, Indian Bank • Mr Venugopal Choudhary, Chief Business Officer & Chief Technology Officer, Pine Labs Credit+ • Mr D. Padmanabhan, Founder & CEO, IndyGen Labs • Mr Shaleen Srivastava, Head-Strategy, DA and Partnerships, Experian India.

Ecosystem Readiness Challenge

The primary hurdle for next-gen tech adoption lies beyond technology itself, encompassing ecosystem readiness, governance, platforms, and organizational culture. FinTechs and NBFCs act as catalysts, compelling larger banks to innovate in customer acquisition, data utilization, and personalization.

Mandatory Tech Adoption

AI and cloud technologies are non-negotiable, demanding rapid implementation while managing compliance costs and regulatory demands. Banks must accelerate foundational building blocks like Account Aggregators and Unified Lending Interface (ULI), alongside process standardization (e.g., KYC) and core digitization.

Balancing Stability and Innovation

Leadership requires equilibrium between financial stability and technological advancement, with proactive investments ensuring long-term relevance. Emphasis falls on conversational banking via AI bots, eliminating app friction for seamless customer interactions.

Productivity and Risk Foundations

GenAI unlocks productivity by automating processes, supported by clear strategies, governance, and reskilling, as recognized by regulators. Banks address broader risks—credit, cyber, climate—through stable tech infrastructures enabling vibrant, resilient operations.

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