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The future of the Indian banking sector will be defined by a mix of technological transformation and structural changes over the next decade, according to a report by Elara Securities.
The report, titled "Future of Banking - Seven structural forces shaping the next decade", highlighted that AI and GenAI transition, along with a change in deposit profiles and democratization of credit, will be among the most significant forces shaping the industry between 2025 and 2035. According to the report, the seven key structural forces that will influence the banking terrain which includes, change in deposit profile, democratization of credit, structural changes accompanied by consolidation, productivity challenges, AI and GenAI transition along with evolving business models to tackle newer risks such as cyber threats, swift resolution of leadership voids, and a subtle but notable shift driven by climate risks, which often remain underappreciated. The report noted that the coming years will mark a "fight for relevance" for banks amid rapid transformation. While India's strong digital infrastructure and supportive government policies provide a solid foundation for growth, banks will need to address emerging challenges such as the integration of AI technologies, cybersecurity threats, and productivity issues. The report observed that in the past two decades, Indian banks have successfully navigated several existential threats and focused on achieving scale. It also mentioned that, between 2015 and FY25, the business growth, loan growth, and deposit growth of Indian banks stood at 1.7x, 1.74x, and 1.6x, respectively, figures that surpass the growth recorded between 1951 and 2015. The report further stated that the resilience of the Indian banking system has been built over time, having transitioned through early vulnerabilities. Despite extreme volatilities, both external, such as global challenges and the Covid pandemic, and internal, such as the asset quality review and demonetization, banks have emerged stronger. It added that Indian banks' credit, deposit, and business growth during FY15 to YTDFY25 was 1.74x, 1.61x, and 1.67x, respectively, compared with the growth witnessed in the past 60 years. The report concluded that while the Indian banking sector enters a transformative phase, its ability to adapt to new technologies, manage risks, and leverage opportunities will determine its success in the coming decade. (ANI)
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