Indian banks allocate a lower percentage of their revenue to IT spending compared to global peers, a report by Boston Consulting Group has pointed out. Global banks typically invest 7% – 9% of their revenue on IT costs while Indian banks allocate only up to 5%, it said.
According to the BCG report “The Poster Child”, 75% of digital payments and loans and 25% of new digital accounts will originate from third-party platforms by FY26.
BCG said that almost 80% of the IT budget was spent on Run the Bank (RTB) as compared to Change the Bank (CTB) with a focus on keeping the lights on.
“Indian banks invest relatively less in IT compared to their global counterparts with limited focus on core system enhancement,” the BCG report said. “Core systems across financial institutions grapple with challenges in scalability, flexibility, agility and resilience.”
BCG projected that a global bank earning net revenues of more than $10 billion would spend 9.1% of that on upgrading IT infrastructure. In comparison its Indian counterpart would only spend 3.2%. While a global bank making net revenues between $1 billion to $10 billion would allocate 7.2% of that as IT budgets and an Indian bank would spend only 3% of that on IT.
The agency said that there is a need to increase spend on change the bank initiatives, preferably with a ratio of 60:40 versus run the bank initiatives.
The RBI ombudsman recorded more than 40,000 mobile and internet banking complaints in both FY23 and FY22.
BCG also said that lenders were largely focused on low hanging fruits such as enhancing customer experiences and offering omni-channel services.
They have directed their IT budgets toward front-end engagement systems, overlooking the core systems, it said.
“This has resulted in legacy backend infrastructure that is inadequately equipped to support faster go to market for new product launches and the growing volume of transactions,” BCG said.
UPI Payments, a part of “India Stack”, has emerged as the flagship Indian fintech product over the recent years. It has seen remarkable growth, rising 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 new-age apps like digital lending and super-apps is placing significant pressure on engagement systems and core systems.
