Context:
A joint report by FICCI and the Indian Banks’ Association (IBA), titled “Charting New Frontiers” and prepared by Boston Consulting Group (BCG), highlights a significant transformation in India’s bank lending pattern over the last 14 years, as well as the emerging opportunities and challenges for the sector.
Key Highlights:
Changing Lending Mix
- Corporate Advances Decline: Share of corporate loans in total bank credit has fallen from 58% to 36%.
- Shift to Capital Markets: Corporates are increasingly opting for capital markets, private credit, external commercial borrowings (ECBs), Alternative Investment Funds (AIFs), and Real Estate Investment Trusts (REITs) for long-term funding.
- Working Capital Focus: Within bank lending, short-term working capital loans dominate over long-term capex loans.
Need for Banks in Emerging Sectors
- Banks must play a key role in funding new capex for sunrise sectors (green energy, digital infrastructure, manufacturing) and large infrastructure projects to achieve India’s growth aspirations.
Credit Penetration and New Borrowers
- India has a large informal workforce with low credit penetration.
- New-to-credit (NTC) loan share declining – at current pace, formalising them could take over a decade.
- MSME lending boost due to Udyam registration, GST, digital payments (UPI, QR codes), and guarantee schemes.
- Well-underwritten NTC loans perform on par with existing-to-credit (ETC) customers, indicating scope for responsible expansion.
Banking Growth & Viksit Bharat
- To meet the Viksit Bharat 2047 vision, banking assets must grow 3-3.5 percentage points faster than nominal GDP.
Digital Transformation Challenges & Opportunities
- Opex-to-assets ratio up by 26 bps over 14 years, indicating limited productivity gains despite digitisation.
- AI/GenAI potential: Can automate 35-40% of low-value activities, enhancing efficiency.
- Digital Public Infrastructure (DPI): Aadhaar, UPI, Jan Dhan have improved access; next phase (DPI 2.0) with Account Aggregator and Unified Lending Interface (ULI) to enable seamless, trust-based, omni-channel banking.
