Indian banks need new tech to achieve Viksit Bharat: PwC

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India’s banking sector needs to develop artificial intelligence (AI)-driven solutions and establish governance frameworks for these technologies to strengthen its role in realizing the vision of ‘Viksit Bharat’ (developed India).

According to a new report by PricewaterhouseCoopers (PwC), titled ‘Viksit banking – A roadmap for the Indian banking sector for 2047,’ while the government works on infrastructure and broadening banking access, regulators should focus on innovation and addressing the challenges of adopting new technologies, such as blockchain and Generative AI (GenAI).

“The future of the banking sector looks promising, with many banks already on their transformation path, emphasizing digital solutions, innovation, and impact-driven initiatives. However, much remains to be done for the sector to play a central role in the country’s economic development. The next decade is crucial, and banks need to formulate clear strategies to become key enablers of growth across various sectors,” PwC’s report stated.

“The growth of the Indian banking system is largely driven by the adoption of digital technologies, evolving digital public infrastructures (DPIs) and government initiatives,” the report stated.

India intends to leverage AI to achieve its Viksit Bharat goal by 2047. With 1.4 billion people—almost 18% of the global population—the economy of the world’s most populous nation is set to dominate the global economic landscape, maintaining its status as the fastest-growing large economy over the next two fiscal years. The World Bank has projected 6.7% growth for India, surpassing global growth of 2.7%.

India also projects to be a $5 trillion economy by 2027-2028 and the world’s third-biggest economy, leveraging emerging technologies like AI and blockchain as key catalysts for growth.

Investments in cloud, GenAI

According to the PwC report, India’s banking sector must consistently invest in cloud technologies, generative AI, and other emerging innovations to improve its product offerings, digital capabilities, and overall customer experience.

AI is revolutionizing customer service in banking, with platforms like Bhashini enabling regional language translation, which could benefit banks as well. By leveraging historical data, banks can make proactive, data-driven decisions that enhance customer service, boost operational efficiency, improve service delivery, and manage risks effectively, the report pointed out.

Intelligent automation is another area where banks should invest to streamline operations, reduce errors, and increase efficiency. Processes like know-your-customer (KYC), lending, and transaction monitoring are expected to become more automated and intelligent with reduced manual intervention, thanks to technologies like AI. 

Additionally, digital assets, such as central bank digital currencies (CBDCs) and tokenized assets on blockchain, offer new cost-effective ways for customers to engage with financial services, further enhancing intelligent banking operations.

Three key sectors

To realize the vision of becoming a ‘Viksit Bharat’ by 2047, India must focus on enhancing the strengths of three key sectors—agriculture, manufacturing, and services—which together play a vital role in the country’s economy, the report said.

“MSMEs (micro, small, and medium enterprises) contributed to 45% of India’s exports in FY23-24, and their growth will see considerable improvement with further reduction in the compliance complexities and better ease of conducting business. The Open Network for Digital Commerce (ONDC) platform aims to digitise the data related to MSMEs which, in turn, results in financial institutions granting credit accessibility to this sector,” the report said.

To accelerate the pace of agri-economy expansion, government initiatives, including market access with liberalized trade policies to promote exports, digital commerce networks, and a unified lending interface (ULI), can enable the diversification process.

The ULI was designed and developed by the Reserve Bank Innovation Hub (RBIH), a subsidiary of the RBI. Launched as a pilot program in August 2023, RBI’s ULI is expected to completely transform credit delivery in the country. It is a technology platform built to facilitate access to authenticated data from various sources through a standardized application programming interface (API) to which all lenders can connect seamlessly through a plug-and-play model.

AI, robotics, IoT, driving industrial growth

According to the PwC report, with the advent of Industry 4.0, technologies such as AI, robotics, the Internet of Things (IoT), and big data analytics are fueling industrial growth.

Additionally, India’s ongoing efforts to upskill the workforce, reform labor laws, address supply chain challenges, improve access to markets and finance, promote research and development (R&D), and develop industrial parks, corridors, and conventions can further drive industrial expansion.

In the services sector, banks play a key role in facilitating export-import trade, particularly for IT-enabled service companies. Global capability centers (GCCs) of numerous multinational corporations are expanding at a compound annual growth rate (CAGR) of over 16%. With India’s skilled workforce, lower operational costs, and business-friendly environment, GCCs are expected to continue growing in the country in the years ahead.

The PwC report acknowledged that the India Stack initiative has transformed the landscape of DPI in India, earning global recognition for its strong digital capabilities in identity, payments, and data management. This foundational advancement, which includes systems like Unified Payments Interface (UPI), Aadhaar, ONDC, and ULI, has played a crucial role in driving financial inclusion in the digital-first era.

ULI is a new addition to the Indian DPI credit ecosystem, which can help lenders ease the credit assessment and disbursement processes. According to PwC’s analysis, ULI is expected to be an integral part of the lending ecosystem in the future.

Investments in building digital infrastructure

As technology increasingly becomes integral to business operations, Indian banks have made substantial investments in digital infrastructure, providing services like mobile banking apps, internet banking, and other digital tools to improve customer experience and convenience. With transaction volumes rising and services being available around the clock, modernizing technology and ensuring resilience have become crucial for banks. In addition to these advancements, banks are also concentrating on adopting emerging technologies and strengthening cybersecurity measures.

The PwC report highlighted that adopting cloud infrastructure will enable banks to quickly scale IT resources, build or expand infrastructure, and introduce advanced digital banking capabilities, all while enhancing security and ensuring regulatory compliance.

“RBI’s cloud initiative, with its pilot set to be launched by 2025, offers a public cloud platform to financial institutions for affordable data storage services,” the report pointed out.

The integration of AI and machine learning (ML) presents numerous opportunities for banks, such as conversational AI chatbots, credit decisioning, fraud detection, hyper-personalization, and targeted marketing. AI can also automate various service delivery processes, improving customer satisfaction while reducing operational costs.

“Banks face numerous challenges while implementing new technologies, mainly due to the lack of understanding about the financial impact of IT investments and the need for IT specialists. Internal issues like communication problems and high employee turnover slow growth, while externally, customer adoption and change management are ongoing hurdles,” the report stated.

“Compliance with regulations and having a skilled workforce familiar with new technologies are priorities. Effective change management is crucial for successfully integrating new technologies and staying competitive,” the report added.

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