It's time for a hard reset to boost the productivity of Indian banks

We need policy shifts to foster digitization and competition among lenders for this sector to be productive, innovative and fit

- SAURABH TRIPATHI & APARAJIT SUDHAKAR

Our latest research, released as a global BCG report, highlights that over the last decade, cost productivity in Indian banking has continually declined. India stands out as the only major economy to witness such a decline, while most others improved consistently—with only a slight recent reversal.

This doesn't sit well with India's image as a high-potential tech-savvy economy. We need a highly efficient financial system to support India's aspiration to be a 'developed' economy by 2047. A critical element of that is low intermediation cost—basically, the cost banks incur to connect savers and borrowers.

India has had great success with national digital initiatives. The Unified Payments Interface, widely known as UPI, for instance, has become a global benchmark. The same energy is needed within banks. As Prime Minister Narendra Modi said: "Make in India. Make for the world." If Indian banks innovate and improve productivity, they can be role models for the Global South, just as UPI is today in payments. To encourage this, India would need a fresh policy approach. Here is what could make the difference required:

First, welcome global interest in Indian banking with an attractive policy framework: India is one of the few large economies still growing fast. Global financial institutions are eager to enter and serve the Indian market. India should welcome this capital and capability with a policy that is attractive to institutions that enter India with an eye on long-term value generation. This will bring more technology, better services and stronger competition.