The Indian banking sector has significantly outperformed its global peers, bolstered by India’s robust macroeconomic growth. With GDP expanding at an average annual rate of 9 to 12 percent since 2021, banks have experienced sustained credit expansion, steady deposit growth, and improving asset quality.1 The postpandemic rebound accelerated credit penetration, driving profitability to its highest level in the last decade. Leading banks have capitalized on this momentum, translating their strong performance into substantial valuation gains.
As India deepens its integration with the global economy, the sustainability of its banking sector’s outperformance is uncertain. While balance sheets remain strong and capital adequacy ratios are robust, rising stress in retail lending and the possibility of further interest rate cuts could put pressure on returns. Profitability headwinds are becoming more pronounced amid multiple structural challenges.
Indian banks could benefit from adopting a more comprehensive perspective that looks beyond profitability alone. While strong financial performance has characterized recent years, our previous report highlighted emerging pressures from flat net interest margins (NIMs), declining fee income, and rising expenses.2 These early signs of headwinds are now becoming more evident across the sector.
To navigate this evolving landscape, we reintroduce the Holistic Impact scorecard—a framework we proposed in the previous report to evaluate bank performance across five key parameters: financial performance, encompassing robust asset growth, healthy return ratios, and a balance of growth, efficiency, and investments; industry health, spanning industry structure, competitiveness, and innovation by both incumbents and new entrants; customer experience, emphasizing digitalization-driven convenience alongside transparency and fair practices; societal and environmental impact, driving financial inclusion through focus on underserved segments and catalyzing the transition to a green economy; and operational resilience, including technology adoption to drive operations, as well as talent management across the employee life cycle. This multidimensional approach has gained fresh relevance, helping banks evaluate their performance amid complex market, regulatory, and environmental shifts.
This report applies our holistic framework to explore the trends shaping the future of Indian banking—highlighting both structural shifts and emerging challenges (Exhibit 1). To stay ahead, banks would need to strengthen their financial and operational foundations, embrace innovation to enhance customer value, and align their growth with broader social and environmental goals.
Financial performance
Indian banks reached record ROAs in fiscal year 2025.3 The profitability peak masks a deepening structural challenge—compressing NIMs, declining fee income, and high operating costs, which may affect future earnings potentials. While asset quality improved to a 13-year low gross nonperforming assets (GNPA) ratio of 2.2 percent in fiscal year 2025,4 elevated write-offs in unsecured retail and increasing slippages signal emerging credit stress that could affect future returns.
ROAs are peaking, but NIMs are under pressure
Indian banks achieved a peak ROA of 1.4 percent in fiscal year 2025 (Exhibit 2).5 Sustaining these gains appears challenging amid NIM compression, higher operating costs, and weaker noninterest income.
Indian banks are navigating a structural profitability squeeze as credit expansion outpaces deposit growth (Exhibit 3), resulting in tighter liquidity across the system.
NIMs have slipped to 3.1 percent in fiscal year 2025 (annualized) from 3.3 percent in 2024, reversing their steady rise since 2018 and squeezing banks’ ROAs.6 Yields have flattened at 7.7 percent during fiscal year 2025, with loan books leaning toward lower-yielding secured credit (69.0 percent in fiscal year 2025), while weaker new-to-credit sourcing limits yield growth. Funding costs are rising, with interest expense at 4.6 percent of average assets in fiscal year 2025, compared with 4.4 percent in 2024 (Exhibit 4).7 Weaker household inflows into bank deposits are prompting banks to seek more expensive wholesale funding. A decade-high credit deposit ratio of 80 percent has driven a shift to higher-cost deposits, with term deposits rising three percentage points to 61 percent over the past seven years, thus raising funding costs.8
Noninterest income has slipped to 1.3 percent of assets in fiscal year 2025, compared with about 1.4 percent in 2020, driven by several structural shifts affecting fee income.9 The growth of digital payments, such as Unified Payments Interface (UPI), has disrupted banks’ payment revenue. With direct mutual fund systematic investment plans rising, fee income from mutual fund distribution and insurance sales has experienced muted growth. Customers’ shift toward free remittance services that fintechs offer has put pressure on traditional fee-based revenues (Exhibit 5).10 On the corporate side, commission income from guarantees has become strained due to intensifying competition and price compression for large clients. Banks will need to pivot to faster-growing segments, such as high-net-worth individuals (HNI) and ultra-high-net-worth individuals (UHNI) wealth management services, to increase their fee income.
Despite lower cost-to-income ratios in fiscal year 2025 (Exhibit 6), Indian banks’ cost-to-assets ratios remain nearly twice that of their global peers. The sector continues to face margin pressure as jaws ratios have stayed negative since fiscal year 2021,11 indicating the deployment of additional resources that do not generate commensurate value. The key factors driving up costs are rising staff expenses—growing at a CAGR of 16.4 percent in private banks and 10.2 percent in public sector banks (PSBs)—driven by hiring and staff turnover.12 Technology and compliance costs are also up, rising at a CAGR of 16.2 percent for private banks, which spend up to 10 percent of their operating costs on technology.13
There are stress pockets in asset quality
The GNPA of Indian banks dropped to a 13-year low of 2.2 percent in fiscal year 2025, supported by prudent lending and improved recoveries (Exhibit 7).14 However, a notable rise in write-offs, particularly by private banks, which account for about 82 percent of write-offs in unsecured retail loans,15 could be masking deteriorating asset quality in unsecured lending. The ratio of write-offs to GNPAs rose to 32 percent for scheduled commercial banks and 45 percent for private banks, compared with 26 percent for PSBs.16
The slippage ratio increased to 0.70 percent in fiscal year 2025, compared with 0.55 percent in 2024, driven by unsecured retail stress, which accounts for about 52 percent of fresh nonperforming assets.17 Personal loan nonperforming assets rose to 1.6 percent from 0.9 percent in fiscal year 2022, and those for credit cards rose from 2.2 percent to 3.3 percent.18 Tier-three cities and loan sizes of less than 3 lakh Indian rupees were hit the hardest.19 Secured loans remained stable, but rising slippage will likely increase provisions and pressure on costs.
Industry structure and health
India’s banking sector is undergoing a fundamental portfolio realignment—retail lending has surged while corporate credit has contracted, setting the stage for an anticipated resurgence in corporate lending as small and medium-size enterprises (SMEs) scale up to become midsized and large enterprises by 2030. Yet this transformation is shadowed by increasing structural vulnerabilities: Capital adequacy pressures are mounting in foreign and small finance banks, and increasingly sophisticated fraud schemes have driven a 206 percent surge in cyber-enabled losses.20 At the same time, sector-wide reforms such as the ongoing consolidation of regional rural banks (RRB) under the One State, One RRB policy are reshaping the industry landscape, building larger and more digitally enabled institutions.21
The sector stands at an inflection point, navigating strong growth tailwinds while managing rising operational and capital risks.
Capital constraints are rising in foreign and small finance banks
Capital adequacy has declined for private, small finance, and foreign banks but has stayed above Reserve Bank of India (RBI) norms between fiscal years 2021 and 2024. PSBs improved their capital adequacy ratio from 14.1 percent in fiscal year 2021 to 16.1 percent in 2025, although they remain the least capitalized (Exhibit 8).22 Private banks witnessed a moderate increase in the ratio of capital to risk-weighted assets from 18.5 percent in fiscal year 2021 to 18.6 percent in 2025.23 The trend underscores the importance of proactive capital planning, especially for midsized and small banks, in maintaining resilience amid credit expansion and evolving portfolio risks.
Industry structure is shifting with portfolio realignments
Retail lending has increased from 28 percent in fiscal year 2018 to 35 percent of assets under management in 2025, while corporate lending has decreased from 50 to 38 percent during the same period.24 Micro, small, and medium-size enterprises (MSMEs) and agricultural shares remain stable, but to capture promising frontier opportunities, it may be important for some 1,000 midsize and small firms to become large and for about 10,000 small firms to become midsized.25 Rising private and public capital expenditures as well as the emergence of new companies will likely fuel growth, echoing the investment-led boom of fiscal years 2001–08.
Structural reforms such as consolidation continue to gain momentum
The consolidation of RRBs has continued in a structured, phased manner aligned with the government’s long‑term One State, One RRB vision. After reducing their count from 196 in the early 2000s to 43 by 2024, the latest Phase IV amalgamation, effective May 1, 2025, merged 26 RRBs across ten states and one union territory, bringing the total number down from 43 to 28 RRBs operating across 26 states and two union territories.26 This consolidation aims to streamline governance, improve scale efficiency, reduce administrative overhead, and create stronger, unified institutions with clearer geographic mandates. This has led to the creation of larger, more unified institutions aimed at enhancing financial stability, scale efficiency, and rural outreach. Policy makers are highlighting the importance of digitally enabled, more efficient RRBs that can match or bring them closer to the service levels of commercial banks. However, these RRBs remain fundamentally dependent on their sponsor banks for capital adequacy, technology, and regulatory compliance functions. Their long‑term success will hinge on balancing modernization with their core rural mandate: adopting digital transformation, attracting professional management, and building localized strategies tailored to state‑specific needs while continuing to serve farmers, small entrepreneurs, and rural households.
Increasingly sophisticated fraud is driving the need for stronger detection and defense
Banking fraud cases have surged at a CAGR of 33 percent over the past two years. PSBs account for 30 percent of the cases but 70 percent of the fraud amount, with loan-related frauds being the most common (Exhibit 9).27 Private banks reported 14,233 cases, the highest among bank groups, contributing 28 percent of the total fraud amount.28 Digital payment frauds accounted for 57 percent of the cases but only about 1 percent of the total fraud amount. Loan-related frauds, including letters of undertaking and corporate scams, represented 90 percent of the fraud value.29
India’s banking sector saw a surge in cyber-enabled financial fraud in 2024, with losses of 22,845 crore Indian rupees, a 206 percent increase year-over-year, as well as nearly 36.4 lakh complaints, primarily driven by mule accounts.30 Weak know-your-customer (KYC) controls, unreported suspicious transactions, and the exploitation of victims as “unwitting mules” reveal deep systemic vulnerabilities, as highlighted by the CBI’s Operation Chakra-V.
To strengthen the industry’s fraud‑risk posture, the RBI Innovation Hub is deploying tools such as MuleHunter.ai to detect mule accounts in real time.31 Individual banks are also expanding their fraud management capabilities by enhancing transaction monitoring, deploying AI‑based anomaly‑detection systems, tightening early‑warning frameworks for stressed borrowers, and strengthening governance and forensic review processes.
Customer experience
PSBs are rapidly closing the digital gap with private banks. Indian banks are also shifting from basic segmentation to hyperpersonalized experiences that drive deeper customer engagement. This transformation, dovetailed with achieving feature parity with AI-powered personalization across value propositions, pricing, and digital ecosystems, is reshaping how banks compete for loyalty in an increasingly digital-first market.
Digital parity is improving across PSBs and private banks
Digital adoption is accelerating, with PSBs closing the gap with private banks in core capabilities such as digital onboarding, card and loan management, and AI support. However, while private banks still lead on digital investment, allocating up to 10 percent of operational expenses to IT compared with 6 to 8 percent just a few years ago, PSBs are making progress.32 The main difference remains in customer experience—for example, the top three PSB apps score between 4.1 and 4.3, while the top three private banks score around 4.5—highlighting the need to improve app stability, design, and engagement to match private banks and boost customer satisfaction.33
Banks are moving toward hyperpersonalized service offerings to engage and retain diverse customers
To stay competitive in a digital‑first market, banks are shifting from broad segmentation to hyperpersonalization, using real‑time data, analytics, and AI to deliver tailored experiences that reflect individual customer needs and preferences. When embedded across channels, hyperpersonalization enhances customer satisfaction and loyalty, improves digital adoption, and strengthens overall engagement—improving the net promoter scores and customer satisfaction scores of the bank.
Leading banks use hyperpersonalization to tailor products, journeys, and interactions to individual customer needs, shaping propositions, refining experiences, guiding relationship models, and embedding relevance across their digital ecosystems to drive deeper engagement and sustained growth.
Societal and environmental impact
India’s financial inclusion story is advancing through digital infrastructure and expanding access. While inclusion has seen remarkable progress, engagement and empowerment remain elusive with dormant accounts and underpenetrated credit markets. Environmental, social, and governance (ESG) financing remains at the early stages of maturity, threatening its long-term sustainability.
Inclusion is progressing, but gaps in engagement and empowerment remain
India’s financial inclusion is deepening, driven by digital adoption, policy reforms, and growth in formal credit. The RBI’s Financial Inclusion Index rose from 43.4 in fiscal year 2017 to 67.0 in 2025, reflecting a steady expansion in access to and use of financial services.34
More than 56.2 crore Pradhan Mantri Jan-Dhan Yojana accounts indicate strong inclusion, but engagement remains weak, with approximately 30 percent of accounts inactive and average balances of less than 5,000 Indian rupees.35 UPI-based payments now form the backbone of access, with 70 percent of transactions from non-tier-one cities—signaling adoption beyond metros.36 Meanwhile, formal credit is expanding deeper into tier-three and smaller cities, reinforcing the growing acceptance of banking services.
But MSME credit, which has a demand of approximately 45 lakh crore Indian rupees, remains underpenetrated. Retail loan penetration, at 18 percent of GDP, lags peers such as China and Vietnam, where it stands at 62 percent and 42 percent of GDP respectively (Exhibit 10).37 Bridging the gaps of MSMEs and boosting engagement will be key to sustaining inclusive growth.
Priority sector lending increased only 10 percent in fiscal year 2025, matching the credit growth rate and marking the slowest growth since 2021, despite accounting for 43 percent of credit.38 Growth is shifting to higher-yield segments such as medium enterprises (22 percent) and renewables (72 percent), while housing and social infrastructure have weakened.39 Rising defaults are curbing MSME and small-borrower lending; recovery will hinge on AI-led underwriting, wider e-KYC and account aggregator adoption, and improved financial literacy.
ESG financing remains in an early stage of maturity
India faces a 50 to 55 percent gap in green finance, with CO₂ emissions estimated at around two metric gigatons by 2070 under current policies and technologies (Exhibit 11).40 Achieving net zero by 2050 would require stronger measures such as carbon pricing; breakthroughs in carbon capture, utilization, and storage; and faster adoption of sustainable consumption practices.
Financial institutions can play a key role, but 47 percent of Indian banks lack an ESG strategy and expertise in green finance. Aligning with the RBI’s climate framework and disclosure norms while building ESG capabilities and integrating climate risk into operations would be essential to mobilize sustainable finance at scale.
Operational productivity and resilience
As banks navigate digital transformation, they face a threefold challenge: modernizing legacy infrastructure while building resilience, cultivating new talent capabilities, and strategically deploying emerging AI technologies. These operational imperatives are reshaping how banks drive productivity, manage costs, and compete in an increasingly digital-first market.
The imperative for core modernization and technology resilience is rising
Technology has transitioned from merely being a support function to becoming a core enabler of scale, efficiency, and customer experience in banking. As digital transaction volumes rise, customer expectations evolve, and regulatory requirements tighten, banks are prioritizing core modernization and technology resilience to sustain growth and manage risk.
Core modernization. Legacy core systems continue to constrain automation, product agility, and operating‑cost efficiency. Modernization increasingly centers on progressive core renewal, API‑first architectures, and hybrid‑cloud adoption, in which banks retain critical workloads in their own data centers while selectively migrating modular services to cloud‑native platforms. This approach allows banks to modernize without disrupting mission‑critical operations, and it supports real‑time processing, agility, and faster change cycles (Exhibit 12).
Technology resilience. Resilience has become a strategic priority as banks manage higher transaction loads, digital journeys, and 24/7 availability expectations. Downtime and service disruptions often stem from fragmented legacy architecture, outdated infrastructure components, and inconsistent engineering and operational practices. Strengthening resilience requires modernization of infrastructure, improved observability and monitoring tools, and automated failover mechanisms that accelerate recovery.
Cost‑effective operations. IT costs remain elevated due to legacy maintenance and cybersecurity requirements. Banks are using AI, automation, microservices, and localized cloud initiatives to reduce run‑the‑bank costs and shift resources toward change‑the‑bank priorities.
Harnessing the power of data. Advanced analytics and gen AI are becoming key differentiators in specific banking areas, including credit, fraud detection, and personalized engagement with customers. With stronger data governance frameworks and adherence to emerging regulatory guidelines, banks can leverage AI to improve risk decisioning, enhance operational efficiency, and deliver tailored financial journeys while maintaining compliance and customer trust.
Talent profiles are evolving, and new skill gaps are emerging
Indian banks are enhancing employee productivity by using digital tools, operational efficiency, and strategic hiring (Exhibit 13). PSBs experienced an increase in income per employee from 54 lakh to 80 lakh Indian rupees between fiscal year 2022 and 2025 while witnessing a decline in their workforce.
Banks are increasingly insourcing talent in analytics, design, and technology, with private banks leading the way. PSBs have also ramped up their hiring of technology and finance experts to boost digital transformation and risk management. The RBI’s governance push is encouraging the development of in-house capabilities and reducing reliance on vendors. Banks are also updating their appraisal systems, with some private banks piloting 360-degree feedback and role-linked KPIs. However, adoption remains lower for financial firms compared with other industries.
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While agentic AI is enhancing productivity, large-scale deployment is at a nascent stage
Agentic AI–powered coworker models leveraging large language models are transforming banking workflows in areas such as credit origination, collections, and servicing. These “bionic” agents handle tasks such as credit eligibility checks, document retrieval, and case resolution, improving accuracy and efficiency. Although adoption is still in its early stages, banks are integrating these systems into domains, which form the foundation of a financial institution’s business processes and span sales, marketing, and risk management. Subdomains within each domain are the fundamental units of AI transformation, characterized by teams with dedicated resources working toward shared goals, measurable business outcomes, and reusable AI applications across business segments (Exhibit 14). Scaling requires enterprise-wide integration, modular AI components, and a platform operating model. Success hinges on a clear AI vision, full-stack approaches, and multiagent systems—as well as reusable components to unlock efficiency, new business models, and differentiated customer experiences.
The way forward: Navigating banking headwinds
As banks continue to evolve in line with changing customer expectations, rapid digital advancements, and shifting regulatory priorities, 14 strategic initiatives could help sustain growth and competitiveness (Exhibit 15).
Financial performance
Drive structural cost transformation through enterprise-wide cost discipline for scalable and sustainable growth. Banks can consider a comprehensive approach to managing costs and productivity, because incremental measures often fall short in a competitive environment. Simplifying structures, streamlining processes, boosting frontline productivity, and scaling digital automation can help improve cost ratios.
Structural cost transformation can enhance profitability and free up capacity for reinvestment in growth, technology, and customer engagement. Incorporating productivity into core operations enhances agility to manage tighter spreads, compliance costs, and shifting customer needs.
Unlock SME opportunity with segment-specific products and ecosystem-linked financing solutions. SMEs remain a high-potential yet underpenetrated segment, with limited access to credit despite their critical role in industrial output and employment. For banks, this presents an opportunity to deepen engagement by addressing cash flow, working capital, and growth financing needs.
Unlocking the SME opportunity requires banks to move beyond standard term lending and toward more flexible, workflow‑integrated solutions such as supply chain financing, invoice‑discounting platforms such as the Trade Receivables Discounting System, and embedded working capital tools. Banks could deploy sector-specific solutions tailored to unique industry workflows to deepen their SME engagement. For example, retail merchants can receive dynamic settlement insights and cash flow forecasting, healthcare providers can access automated claims reconciliation and patient payment plans, and so on. Developing a stronger SME franchise through digitalized value chains and integrated financial solutions can strengthen growth and expand noninterest income.
Monetize affluent, HNI, and UHNI segments through integrated wealth and advisory offerings. India’s expanding HNI and UHNI population represents a substantial opportunity for banks to deepen relationships and diversify revenue. However, nonbank wealth managers and investment platforms have historically penetrated this segment more effectively, driven by advisory‑led models, product breadth, and an early‑mover advantage. Banks could strengthen their proposition in this segment by combining wealth offerings with SME banking solutions, creating a unified value proposition that serves both the personal and business financial needs of promoters and business owners. An integrated approach, bringing together digital convenience, curated investment products, and advisory services across both personal wealth and business requirements, could help capture greater wallet share, enhance client stickiness, and unlock the full potential of this segment.
Stronger product suites across mutual funds, insurance, and structured solutions—combined with seamless onboarding and portfolio management—are key enablers of growth. Integrating wealth management into daily banking can increase wallet share, provide stable fee income, and reduce the reliance on margins.
Strengthen the CASA franchise by deepening deposit retention through customer engagement and ecosystem integration. Rising funding costs and slowing deposit growth have made retaining and deepening current account savings account (CASA) relationships a strategic imperative. Banks could improve engagement by offering personalized, multichannel interactions and integrating services into retail and SME financial journeys. This includes embedding payments more seamlessly across touchpoints—for example, real‑time checkout financing, automated invoicing and collections for SMEs, or integrated cross‑border payment options for exporters. Banks can also deploy sector‑specific solutions tailored to unique industry workflows.
Branch productivity, digital service quality, and product integration are key to sustaining engagement. Banks can also consider harnessing QR collections, points of sale, and SME cash management to deepen ecosystem ties and support CASA. A resilient, diversified deposit base is important, because rising loan-to-deposit ratios put pressure on margins and funding stability.
Develop outbound sales capabilities to drive customer acquisition and productivity for PSBs. Banks, especially those in the public sector, may consider evolving from passive to active customer acquisition strategies to stay competitive amid moderate organic deposit and credit growth. A dedicated outbound sales engine could play an important role in the current competitive retail and SME landscape.
To strengthen competitiveness, banks could establish structured field sales teams equipped with the right tools, performance tracking, and centrally generated leads, all integrated across customer data platforms, customer relationship management platforms, and journey orchestration tools for targeted outreach and timely follow-ups. For PSBs, this also provides an opportunity for frontline upskilling, increased branch productivity, and improved performance in key areas such as unsecured lending, retail liabilities, and new-to-banking acquisition.
Industry structure and health
Set up dedicated COEs to expand financing for high-growth sectors and address the demand for corporate loans. To meet the rising demand for corporate loans and expand into high-growth sectors, Indian banks may consider shifting from retail to corporate lending. This requires revisiting credit standards, sector strategies, and risk appetite, focusing on midsized firms and new-age enterprises in infrastructure, manufacturing, renewables, and electric vehicles. To accomplish this, banks can establish sectoral lending centers of excellence (COEs), engage early with scaling SMEs, and enhance credit analytics for nontraditional risks.
Use M&A as a strategic lever to build specialized capabilities. M&A has enabled Indian banks to achieve greater scale, enhance risk-bearing capacity, and improve operational resilience—whether through the consolidation of PSBs, the amalgamation of RRBs, or selective private bank transactions.
Moving forward, M&A can be viewed as a strategic tool to acquire capabilities in areas such as digital lending, affluent banking, and MSME credit. PSBs can use mergers to strengthen their balance sheets, while midsized private firms can diversify, expand, or gain regional dominance. As competition intensifies, banks can consider inorganic growth as a lever for strategic alignment, future readiness, and differentiation in the evolving financial services ecosystem.
Invest in AI, machine learning, and real-time monitoring to proactively counter rising fraud sophistication. As fraud grows in scale and complexity, banks can benefit from a holistic approach anchored on four levers: prevention, detection, resolution, and customer experience.
On the prevention front, banks can strengthen KYC and transaction-level controls through biometric authentication, video onboarding, dynamic risk scoring, and real-time monitoring to better prevent evolving fraud. Intelligence-driven initiatives, such as AI-powered fraud detection modules, central suspect registries, and analytic tools for tracing mule accounts, could help map fraud networks and uncover suspicious activity in banking systems. Meanwhile, tools such as the Financial Fraud Risk Indicator could enable banks, telecom companies, and regulators to jointly identify and block high-risk transactions.
Detection capabilities can extend beyond isolated bank tools to centralized AI platforms that analyze cross-institution data, especially aiding smaller banks. AI and machine learning, using transaction histories, device fingerprints, and network linkages with graph analytics, could uncover mule account clusters and fraud networks in near real time, enabled by sector-wide data sharing and clear accountability across banks, regulators, and enforcement agencies.
To improve resolution, banks can implement automated incident response, integrated case management, and rapid triaging linked to the Citizen Financial Cyber Fraud Reporting and Management System, enabling faster and more precise determination of liability. The RBI framework, when made more robust, could ensure banks primarily bear the responsibility for losses resulting from digital fraud while clarifying customer obligations and requiring banks to prove customers have not been negligent.
While larger banks are building their capabilities to address fraud, the RBI could also consider assisting smaller banks in becoming more resilient against fraud networks and increasing their accountability to customers by enabling centralized capabilities.
Customer experience is the final but critical lever. Proactive, omnichannel communication—including real-time fraud alerts, clear resolution timelines, and targeted fraud education—fosters resilience and confidence in digital channels. Together, these elements create a unified framework for fraud risk management that enables proactive protection rather than reactive containment.
Customer experience
Redesign service and grievance models to address critical friction points across customer segments. Banks continue to struggle in serving diverse segments—especially senior citizens, rural customers, and individuals with disabilities—that face frequent payment failures, delayed grievance resolution, and the annoyances of manual passbook updates. Doorstep banking has seen limited adoption, forcing mobility-constrained customers to visit branches even for basic services.
Banks may need to move beyond one-size-fits-all delivery approaches and adopt segment-specific models, including assisted channels, priority counters, and simplified grievance processes for seniors and individuals with disabilities, as well as seamless mobile journeys, instant support, and proactive alerts for digital-native customers.
Embedding differentiated service-level agreements, accessible support options, and robust complaint tracking can ease operational strain, raise satisfaction, and rebuild trust across customer cohorts.
Societal and environmental impact
Expand financial services for rural and unbanked segments through tailored offerings. Banks can enhance financial inclusion by expanding their services to rural and underbanked segments. Digital banking innovations such as mobile banking, agent banking, and fintech partnerships can expand financial access to remote populations. Strengthening digital lending models specifically for rural borrowers can help close the credit gap in semi-urban and agricultural regions. The growth of self-service banking kiosks and biometric-enabled financial services could further enhance banking access, reducing reliance on physical branch infrastructure.
Develop sustainable financial products to manage risk and investor expectations and to improve access to capital. Sustainability has become central to long-term resilience in banking; however, India faces a financing gap of 50 to 55 percent in its green transition. Banks could play a pivotal role in climate-aligned lending and investment to help close this gap.
Building capabilities in green product design, climate risk analytics, and ESG compliance through dedicated COEs can strengthen preparedness. Expanding green loans, sustainability-linked credit lines, and financing for renewables, electric mobility, and energy-efficient infrastructure can facilitate the transition. Incorporating climate risk into credit appraisal—supported by stronger ESG data, transparent reporting, and board-level oversight aligned with RBI’s 2024 norms—could accelerate this shift. A structured ESG agenda can enable banks to manage risk, meet investor expectations, and access global sustainable capital.
Operational productivity and resilience
Scale agentic systems while instituting governance for safe and explainable deployment. Banks can consider a dual-track approach to scaling agentic systems—expanding AI use cases while maintaining robust governance. AI automation can reduce costs by streamlining high-volume tasks in credit assessment, sales, service, and collections. Integrating AI across workflows enhances speed, accuracy, and cost-to-income ratios while also releasing capacity for growth.
At the same time, scaling AI safely requires a robust governance architecture, including model risk controls, explainability standards, review boards, and audit trails. To ensure consistency and control as AI scales, banks can adopt a human‑in‑the‑loop structure: a central hub sets policies, validation protocols, and escalation pathways, and business units apply these standards to local workflows. This ensures high‑stakes decisions remain closely supervised while enabling speed and flexibility at the front line. Balancing cost efficiency with responsible AI can enable scalable, resilient growth.
Modernize core systems and embed technology resiliency by leveraging next-gen platforms and cloud-native architectures. Core modernization is gaining momentum, driven by next-generation vendors, cloud-native microservices, and industry standards such as the Banking Industry Architecture Network. As the demand for seamless, real-time banking grows, banks can consider multiple pathways for modernizing their core, including big-bang replacement, progressive modernization, or greenfield technology stacks.
Embedding technology resiliency as a core capability is equally essential. Modernization can be guided by resilience-by-design principles, integrating observability, scalability, and fault tolerance in cloud environments. Streamlined processes, automated testing, and stronger incident management supported by root cause remediation and regulatory alignment enhance reliability. Developing modern skills to ensure the resilience of banking applications, establishing clear recovery protocols, and integrating KPIs into operations and vendor governance can help banks shift from reactive recovery to proactive resilience.
Update performance frameworks and culture to enable, manage, and retain specialized talent and insource critical skills. As banks pursue digital transformation, they can evolve beyond traditional hierarchies to attract and retain specialized talent such as engineers, data scientists, and designers.
Banks can begin by adjusting performance frameworks to recognize different types of contributions. This may involve integrating project-based KPIs, peer feedback, and skills-based progression into appraisal systems without sacrificing the clarity and comparability needed across functions. In parallel, banks could formalize internal capability-building programs to reduce the reliance on external vendors and gain better control over strategic domains. Well-structured career paths for high-demand roles can help attract and retain talent, while internal mobility programs can support skill redeployment across different business units.
Primarily, fostering a culture of autonomy, collaboration, and innovation will be crucial to attracting and retaining high-quality talent, as well as building long-term institutional strength.
Indian banks have experienced substantial growth but face mounting pressure from margin compression, high costs, and new credit risks. Shifting regulatory demands, evolving customer behavior, and rapid technological advancements are reshaping the competitive landscape. To remain resilient, banks would need to strike a balance between growth, profitability, risk, and sustainability, adapting quickly while seizing new opportunities. Their success in navigating these changes will determine their long-term stability and role in India’s economic progress.
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