AI To Transform Indian Banking In The Next Decade: IBEF Report

The India Brand Equity Foundation (IBEF) report indicates that artificial intelligence (AI) and generative AI are the catalysts for the future decade of India's banking industry. In the upcoming decade, AI can evolve from customer-facing applications to being a core part of banks' operations. It could streamline in-house processes, strengthen fraud detection mechanisms, and make lending more data-centric. Banks will surely use AI models to analyse spending patterns, identify probable defaults, and increase compliance.

Credit Access To Expand Beyond Traditional Borrowers

Another noteworthy shift mentioned by IBEF is the "democratisation of credit", where formal access to credit is provided to previously underserved segments. Digitalisation and AI will allow banks to evaluate borrowers using new sets of information, such as digital payment history, online transactions, and even utility bill payments, according to the report. This can reduce dependence on historical credit scores and collateral requirements that otherwise limit small businesses, freelancers, and gig economy workers.

This innovation will likely take the credit universe into a more inclusive sphere but, in the process, risk management will become an issue. With lending expanding to new categories of borrowers, banks will need to sharpen their data models and engage in prudence-lending. The report suggests that models of credit scoring that leverage AI but with an overlay of human judgment have the potential to bring inclusion and caution into balance.

Deposits To Reflect Changing Consumer Behaviour

The report also points to a change in the way Indians save and hold their deposits. As more customers go online for banking, bank deposits composition will change as well. Younger consumers who are fond of flexible financial products may look for short-term or on-demand type of deposits in place of the long-run savings account. More use of digital wallets and investment websites will also define the flow of money through the banking industry.

The report said that banks will have to redefine their deposit and funding strategies to accommodate these new trends. Banks' liquidity management and pricing of lending products may also be affected, as stable deposits form the foundation of lending ability.

The Industry Prepares for Developing Opportunities And Challenges

The report acknowledges that India's banking industry has been stable and consistently expanding over the past decade supported by digital infrastructure and regulation eases. Indian banks witnessed faster expansion in business, loans, and deposits between 2015 and 2025 compared to the preceding decades. However, growth's future will be a function of the ability of institutions to handle technological disruption.

The IBEF report further states that although digitalisation and AI bring in efficiency, they bring in vulnerabilities too. Cyber threats, data privacy concerns, and potential algorithmic bias in lending decisions can be huge concerns. The report points to the importance of more streamlined regulatory frameworks and continuous monitoring to ensure that innovation does not undermine financial stability.

During 2025-2035, India's banking industry is likely to undergo a structural realignment, as per the report. Banks that can integrate AI in their operations will be leaner and customer-focused, while others may struggle to stay alive in a highly evolving environment. Deposit mobilisation, credit delivery, and risk assessment will all be more data-driven and technology-driven than on presence or manual intervention, states the report.