Financial Services at the Forefront: Building a $30 Trillion India

The financial services sector is the backbone of any economy and is deeply intertwined with key economic indicators. As India strides towards its goal of Viksit Bharat — a developed nation by 2047 — the financial services sector is at the forefront of this transformation.

According to a recent report by the Boston Consulting Group (BCG), India’s target of becoming a $30 trillion economy by 2047, and achieving developed nation status, will largely be driven by the financial services industry. The sector will need to grow 20-fold from its current levels for India to reach this ambitious goal.

What’s Happening?

BCG, in partnership with FICCI and IBA, recently released a report stating that a $30 trillion economy by 2047 can only be realised if the financial services industry grows by 20 times. The report, titled ‘Banking for a Viksit Bharat’, highlights the critical role banks play in India’s economic growth. It suggests that banks should take the lead, supported by the expansion of other financial assets. The total capital base of banks should rise to $4 trillion, with one-third of that being fresh capital.

The report presents a positive outlook for India’s banking sector, characterised by low levels of NPAs (non-performing assets) and high profitability. However, banks and other financial institutions need to prepare for a structural shift over the next two decades. Key areas of focus will include deposit growth, enhancing asset quality, improving productivity, and advancing digital capabilities. With the next phase of growth being tech-driven, it is crucial for both the current and future workforce to be proficient in emerging technologies like GenAI.

5 Pillars of Future Growth

The report identifies five pillars that banks must strengthen to achieve 20x growth:

Deposits: Household savings are shifting from banks to pension funds and capital markets, while household borrowing is expanding rapidly. This shift is turning households into net borrowers, placing pressure on liquidity and margins. Banks need to create more attractive deposit products and align with changing trends to ensure sustainable growth.

Asset Quality: Over the past two decades, the expansion of retail lending has led to stable profits and increased financial inclusion. However, there has been a disproportionate rise in unsecured lending, with the current unsecured-to-secured loan ratio at 30:70 (compared to 10:90 in developed countries). The increase in unsecured lending heightens the risk of defaults and deteriorates asset quality. Banks must implement stricter checks to maintain optimal asset quality.

Productivity: Rising costs are outpacing income growth, and employee productivity gains are lagging. To address this, banks should invest more in digital technologies and reimagine their operating models to increase efficiency.

Digital Maturity: Indian banks are outperforming their global counterparts in several areas, including customer experience, payment ease, marketing personalisation, and money insights. Maintaining and enhancing this digital edge will be critical for future growth.

Future Capabilities: With a stable financial services industry and a supportive regulatory framework, banks must seize opportunities in emerging technologies, such as AI and GenAI, to address future challenges like cybersecurity and climate change.

Transactions Are Moving Toward Digital

The BCG report highlights that the current state of the financial services sector provides an ideal foundation for India’s Viksit Bharat mission. With profitability, NPAs, and capital adequacy ratios at their best levels in a decade, now is the time to unleash a reform agenda that reimagines and builds new capabilities.

Insights into Key Areas

Household Savings: Thanks to better use of technology and proactive regulatory measures, more household savings are entering the formal financial system. However, India’s household financial assets-to-GDP ratio stands at 103%, significantly lower than the US (441%) and the UK (217%), indicating that financial assets and borrowing are still underpenetrated compared to other economies.

Deposits and Borrowings: With negative real returns, households are moving away from traditional bank deposits and opting for more lucrative investments such as stocks and mutual funds. The share of bank deposits in household financial savings has dropped from two-thirds to half, and it may fall further to one-third. Over the past decade, demat accounts have risen 10x, SIPs (Systematic Investment Plans) have grown 3x, and NPS (National Pension System) accounts have also seen a 3x increase.

Credit Needs of the Informal Sector: About 88% of India’s workforce is in the informal sector, compared to 10% in the US, 8% in the UK, and 3% in Germany. A significant portion of the population remains dependent on agriculture and allied activities, with limited access to formal credit. Banks need to expand unsecured credit offerings to support these populations and enable them to contribute to India’s growth story.

What’s Next?

Achieving the Viksit Bharat vision will require a well-oiled financial services sector that includes all citizens, supports businesses, and facilitates technological innovation. It is vital for industry leaders, the government, and other stakeholders to collaborate and develop a resilient business model that can withstand volatility and address future challenges. Any delays could jeopardise the goal of making India a $30 trillion economy by the 100th year of its independence.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

This article is for informational purposes only. This is not investment advice. Disclaimer: Teji Mandi Disclaimer