Synopsis: According to a report by Boston Consulting Group (BCG), Indian banks allocate significantly less of their revenue to IT spending compared to global peers, with a focus on maintaining current systems rather than enhancing core infrastructure.
Indian banks are trailing their global counterparts in terms of IT expenditure, allocating a smaller percentage of their revenue towards technology investments, according to a report by Boston Consulting Group (BCG).
The report, titled "The Poster Child," highlights the disparity in IT spending and emphasizes the need for Indian banks to enhance their core systems.
Global banks typically invest between 7% and 9% of their revenue on IT costs, whereas Indian banks allocate only up to 5%, the BCG report noted.
This lower investment is primarily directed towards maintaining current operations, with almost 80% of the IT budget spent on "Run the Bank" (RTB) initiatives rather than "Change the Bank" (CTB) initiatives.
The focus remains on keeping existing systems operational rather than upgrading core infrastructure.
BCG projects that by FY26, 75% of digital payments and loans and 25% of new digital accounts will originate from third-party platforms.
This shift underscores the growing importance of digital ecosystems and the need for banks to invest in scalable, flexible, and resilient core systems.
The report also highlights the stark contrast in IT spending between global and Indian banks.
A global bank earning net revenues of over $10 billion would spend approximately 9.1% on IT infrastructure, while an Indian counterpart would only allocate 3.2%. For banks with net revenues between $1 billion and $10 billion, the figures are 7.2% for global banks and 3% for Indian banks.
BCG suggests a reallocation of IT budgets towards "Change the Bank" initiatives, recommending a 60:40 ratio compared to RTB initiatives.
This shift would help address the scalability, flexibility, agility, and resilience challenges faced by core systems across Indian financial institutions.
The report also highlights the rising number of complaints related to mobile and internet banking, with the RBI ombudsman recording over 40,000 complaints in both FY23 and FY22.
This points to the need for Indian banks to focus on enhancing their core systems to support faster go-to-market strategies for new product launches and to handle the growing volume of transactions.
A significant development in the Indian fintech landscape is the rise of UPI Payments, a component of 'India Stack.'
UPI Payments have grown from 6% of non-cash retail transactions in FY18 to 80% in FY24, with projections to reach 90% by FY26.
The adoption of India Stack by financial institutions for digital lending and super-apps is placing considerable pressure on both engagement and core systems.
In conclusion, "The BCG Report" underscores the urgent need for Indian banks to increase their IT spending, particularly on core system enhancements. As digital transactions and third-party platform integrations continue to rise, the banks' ability to scale and innovate will be crucial.
Investing in robust, agile, and flexible IT infrastructure will be key to maintaining competitiveness and ensuring long-term success in the rapidly evolving financial landscape.
Disclaimer: This article provides information based on the BCG report and is intended for informational purposes only. It should not be considered investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
