McKinsey report: Indian banks have peaked in performance but they still have a long way to go

Subscribe to enjoy similar stories.Banks are at their peak performance in India. Credit growth is faster than nominal GDP growth, world-class digital platforms have arisen and regulations have been supportive. Return on assets reached a milestone 1.4% and gross non-performing assets (NPAs) fell to a 13-year low in fiscal year 2024-25.

The Financial Inclusion Index of the Reserve Bank of India (RBI), up from 43.4 in 2016-17 to 67.0 in 2024-25, reflects the deepening of financial services across the country. The forces that powered this ascent, however, are now flagging. McKinsey’s recent research report, Indian Banks: Navigating through the Turbulence, assesses the performance of Indian banks against a holistic scorecard.

The study found that their outperformance is now up against mounting pressure. Compressed net interest margins, rising operating costs, weakening fee incomes and customers who expect more than just a slick app should prompt the question: What comes next? It’s time for banks to refocus on fundamentals and adopt a more holistic perspective to guide their priorities. Transformation with technology and artificial intelligence (AI): Banks have tirelessly endeavoured to attain digital leadership.

They have invested in seamless digital onboarding, robust cyber security and seemingly limitless phone banking possibilities. App scores have hovered at 4.5 for private banks and been only a little lower for public sector banks. However, technology costs are rising, yielding productivity that is not entirely commensurate with the increased expense.