Building a Future Ready Bank in India

Speaker A: Welcome to the deep dive. Today we are getting into one of the, uh, most dynamic financial landscapes anywhere in the world. The Indian banking sector.

Speaker B: It really is.

Speaker A: And our source material for this is really critical. It's all derived from a 2025 keynote at the Cedar IBSI Mumbai summit, which was all about building a future ready bank.

Speaker B: And that's a really important distinction. Future ready. We're not just looking back at old data. What we're doing here is, uh, distilling the strategic roadmap.

Speaker A: Right. So our mission for this snuck dive is to quickly get our heads around the key metrics, the forces that are driving this incredible evolution in India. And you know how that all stacks up against global trends.

Speaker B: Yeah. And the usual story, the common narrative is that emerging markets are sort of playing catch up.

Speaker A: Uh, always playing catch up. Yeah.

Speaker B: But the data here, it suggests something else entirely. It suggests India is actually leading. Especially when you talk about things like MSME digitization or the sheer scale of upi.

Speaker A: Unified Payments Interface.

Speaker B: Yeah, it's setting a whole new benchmark for credit inclusion. It's a financial revolution really happening at a scale no one else has managed.

Speaker A: Okay, so to unpack all that, let's start with the global picture first, just to set a baseline. Globally, banking seems pretty stable. Consistent growth.

Speaker B: It is revenue as a percentage of assets. It's been hovering around 2% for the last few years, right up to the 2025 estimate.

Speaker A: And a lot of that stability comes from discipline. Right, Operational discipline.

Speaker B: Exactly. This is where you hear the buzzwords. Digital transformation, robotic process automation, rpa. But they're not just buzzwords, they're real. They are the engine for real, repeatable cost savings. I mean, you have major global banks using these tools to automate everything in the back office, from compliance to transaction verification.

Speaker A: And that efficiency really shows up in the numbers. The global average cost to income ratio is what, around 50.7%? That's impressively low.

Speaker B: It is. And that's the target that defines a modern global bank. And right alongside RPA, you have, of course, AI. The sources say something like 80% of banks with over 100 billion in assets are actively using AI and machine learning.

Speaker A: Okay, so that's the high bar. Now let's pivot to India, because the story here isn't just stability, it's. It's exponential acceleration.

Speaker B: It is. I mean, look at the macro engine. India's GDP is on track to hit US$4.2 trillion in 2025.

Speaker A: And the speed behind that number is what's just mind blowing.

Speaker B: It's the velocity. Yeah. India surpassed Japan's GDP back in June of 2025 and it's projected to hit 5 trillion by 2027. This isn't just normal expansion, it's a, a, uh, structural reordering of the global economy.

Speaker A: And you can quantify that speed? The compound annual growth rate, the CAGR for India's GDP over the last decade is 7.5%.

Speaker B: 7.5.

Speaker A: Compare that to the US at 5.7% or the UK at just 1.8%.

Speaker B: It's not even in the same league.

Speaker A: And the banking sector is actually pushing that. It's not just along for the ride, it's an accelerator.

Speaker B: Banking assets have grown even faster at an 11% CAGR over that same decade, hitting $4 trillion. And here's a key stat. Financial services is the single biggest contributor to India's GDP. It's 23% of that 4.2 trillion.

Speaker A: Okay, so this brings us to that fascinating paradox you mentioned at the top. This contrast between digital leadership and, well, actual digital penetration.

Speaker B: Exactly. India has arguably the most advanced digital payment rails in the world, but its digital banking adoption rate is only 43% under 43.

Speaker A: And that's compared to what, 77% in

Speaker B: the US and even higher in the UK? 86% or Singapore at 88%. Mhm. So the infrastructure is there, it's robust, but a huge part of the population is still, you know, evolving its digital

Speaker A: behavior, which points to challenges like digital literacy, trust.

Speaker B: Sure, trust is a big one, and just basic infrastructure gaps in some of the more rural areas.

Speaker A: But where it has been adopted, the scale is just immense. I mean, despite that 43% number, UPI transactions now have an 84% market share by volume. That's worth over $329 billion in 2025.

Speaker B: And that's the engine of daily life. And it's the same infrastructure that's facilitating something like 73% of MSME growth. So the Rails are clearly ready for when that mass migration finally happens.

Speaker A: Which is the perfect setup to dive into the two big players using these Rails. The private sector banks or PVBs, and the public sector banks, the PSBs.

Speaker B: Right, and the PSBs, the public banks, they still hold the majority, about 52% of total Indian banking assets. And they're still growing at about 10% a year.

Speaker A: So comparing these two really gives you insight into the strategic trade offs, doesn't it?

Speaker B: It does. The private banks, the PVBs, the, they're known for being really lean, really efficient, they have lower cost to income ratios. And they're very good at generating fee income. It's about 24% of their operating income.

Speaker A: And their balance sheets are tight. The loans to deposits ratio is high around 89% which tells you they're lending out a lot of what they bring in.

Speaker B: And they are incredibly stable. Their capital adequacy ratio averages 18%. And non performing loans are tiny, just 0.4%. I mean these are just world class metrics.

Speaker A: I thought the branch efficiency numbers were really telling. A private bank branch averages 317 crore in assets. So for our listeners 1 crore is 10 million. So that's you know, 3.17 billion rupees per branch.

Speaker B: Now contrast that with the public banks, the PSBs. They average 211 crore per branch which

Speaker A: is still a lot but significantly less.

Speaker B: It is, but you have to remember the mandate. The PSB's are the ones driving financial inclusion. They're pushing into Tier 2 and Tier 3 regions where you know, the asset mix is smaller and more diverse. That social mission naturally pulls down the branch profitability numbers.

Speaker A: But they're not fragile. The PSBs are still very healthy. They have a 16% capital adequacy ratio. Their bad loans are also very low at 0.5%.

Speaker B: The only real difference is a slightly higher cost to income ratio. 50% for them versus 48% for the private banks.

Speaker A: So that brings up the big question, right? If the PSPs have higher operating and staff costs, how on earth do they manage a net profit per employee that's nearly identical to the private banks? It's 11.8 lakh rupees versus 12.0 lakh.

Speaker B: And uh, the data gives us the answer. It's higher productivity per employee. It turns out that the assets managed per employee at a PSB average 23 crore.

Speaker A: Wow.

Speaker B: So while the branches aren't as concentrated, each individual employee is managing a massive book of business. It's a clear trade off scale and reach over that concentrated urban efficiency.

Speaker A: And that tension is really the core of the whole modern Indian banking story.

Speaker B: Really is.

Speaker A: Okay, let's move on to the five big game changing trends that are reshaping this whole landscape. Starting with payment, uh, modernization and digital scale.

Speaker B: The growth here is just, it's staggering. Digital payment volumes are projected to grow 24% a year through 2030. And what's really fascinating is this two speed payment system that's emerged, right?

Speaker A: So on one side you've got UPI, that's about 85% of transaction volume. This is your daily life small Ticket,

Speaker B: high frequency coffee, your auto rickshaw ride, you know. And then on the other side you have RTGs, the real time gross settlement system. And that accounts for about 69% of transaction value.

Speaker A: So that's the heavy lifting.

Speaker B: That's the heavy lifting. Corporate settlements, interbank transfers and the UPI network itself is always expanding. It's over 683 banks now. Plus you have the central bank digital currency pilots growing to over 4 million users.

Speaker A: Okay, trend number two, the rise of NBFC led lending. These are the non banking financial companies

Speaker B: and they are just consistently outpacing the traditional banks in credit growth year after year.

Speaker A: And a lot of that growth is coming from things they can adopt faster. Like the UPI credit line.

Speaker B: Absolutely. It's genius. You link a pre approved credit line right to the UPI rail. It's already got over 5 million users in its first year, accepted at 190 million merchants. It's basically a mass market credit card, but without the card.

Speaker A: But if these NBFCs are using the public rails for private lending, doesn't that put the big banks at a disadvantage?

Speaker B: It creates huge pressure, which is why the regulators are moving fast. The digital lending directions of 2025 formalize the rules for these arrangements, especially the default loss guarantee or DLG. They cap the guarantee at 5% of the portfolio, which adds a crucial layer of risk control to this whole digital credit boom.

Speaker A: Okay, trend number three, AI personalization and productivity. This connects right back to that global baseline we set.

Speaker B: It does. India's adoption is just accelerating like crazy. Something like 90% of financial firms in India now have a formal AI Roadma app. And the productivity forecasts are. I mean they're just transformative. Generative AI could boost banking operations productivity by 46% in India by 2030.

Speaker A: 46%. That is an enormous lever. How practically does that happen?

Speaker B: You deploy it across all the high volume, repetitive but complex tasks. Think about automating huge chunks of KYC processing, handling the first line of customer service calls, continuous compliance monitoring. You reduce human error and you just slash the processing time for things like loans and claims.

Speaker A: And the market size reflects that. AI revenue in India is projected to reach nearly US$90 billion by 2030. This isn't speculation. It's a strategic shift.

Speaker B: It is. Which brings us to trend four, financial inclusion and non metro growth.

Speaker A: This is all about demographics and policy, isn't it?

Speaker B: It is. The data shows bank account penetration in tier 2 and tier 3 cities will hit about 89% by 2025. But here's the real insight, 55 to 60% of all new banking customers are coming from these non metro regions.

Speaker A: So the growth engine for the next decade isn't Mumbai or Delhi.

Speaker B: No, it's the smaller urban and semi urban centers. And this new customer base is driving about 45% of all new retail credit growth. And it's all supported by things like the Yandon 2.0 policy and tech, uh, like offline UPI for feature phones.

Speaker A: And finally trend number five which is the massive fintech ecosystem built on top of the digital public infrastructure.

Speaker B: The DPI India is a fintech powerhouse. Over 14,000 players, 26 plus unicorns. The whole sector's valuation is set to hit 7 uh,.47 trillion rupees in 2025.

Speaker A: And it all rests on that DPI Foundation.

Speaker B: It does. It brings together identity data and payments into one unified set of rails. And that lets you deliver low cost paperless financial services at a scale that was just unimaginable before. Especially with over a billion Internet users expected by 2025.

Speaker A: Okay, so we've covered the macro picture, the internal bank dynamics and these five major trends. Let's pull it all together. What are the key strategic implications for a bank trying to succeed in this environment?

Speaker B: The data really lays out ah, a clear action plan. First, asset book growth. You simply have to scale your digital lending models. You can't rely on old channels when digital already makes up 20% of assets. That means going all in on AI, APIs and cloud.

Speaker A: Second, the SME book. Since the new growth is coming from Tier 2 and Tier 3, you need a dedicated focus there. And that means a branch light model, not expensive, full service branches everywhere.

Speaker B: Third is the cost income ratio. All banks need to keep driving efficiency through digital channels not just to cut costs but to uh, you know, actually increase the income you generate from every digital interaction.

Speaker A: Fourth is fee income. You have to innovate. You need a targeted segment based approach for new products around cards, payments and other digital services to grow that non interest revenue.

Speaker B: Fifth of course is technology. If you want that 46% productivity boost, you have to adopt AI in your operations, period. And you have to integrate seamlessly with the uh, fintechs and the DPI rails just to stay relevant.

Speaker A: And last but not least, people, you have to upskill your workforce. You can't just drop in gen AI and expect it to work. You need to train people and really foster a culture of innovation.

Speaker B: And if we just zoom out and summarize, the success is just astonishing. Total banking assets hit 359 lakh crore rupees in 2025. That's nearly US$4.3 trillion and it's still growing at 10% a year.

Speaker A: And all that growth is happening efficiently. They're holding a stable 49% cost to income ratio while also driving this massive financial inclusion. The biggest achievement here is that 80% of households in India now have a bank account.

Speaker B: Yeah. Integrating huge parts of the population that were underserved for generations.

Speaker A: Absolutely.

Speaker B: So we know that 55 to 60% of new customers are coming from these tier 2 and tier 3 regions. And we know that generative AI is promising this huge 46% productivity boost. So that leaves a really crucial question for you, our listener, to think about. If all the efficiency is being driven by AI, but the next wave of customers is coming from areas that require high touch engagement and real trust building. How does the traditional bank branch model need to change? Not just as a cost to be cut, but as a critical local service point that uses digital tools to fuel the next waves of growth.