40 per cent of top banks will drop to bottom half in next cycle, time for bold moves is now: Report

Banks should consider their options for building scale or competence through inorganic ways including both mergers and acquisitions as well as partnerships.

Published: 22nd October 2019 03:47 PM  |   Last Updated: 22nd October 2019 03:47 PM   |  A+A-

innovation, creative

For representational purposes


NEW DELHI: At a time when growth is slowing, productivity gains are fading and digital pressures are on the rise, the banking sector should urgently consider radical measures to strengthen profitability and boost returns, says a report.

The McKinsey's Global Banking Annual Review launched on Tuesday, warned that the bottom third of banks need to rapidly reinvent their business models in the face of the continued threat posed by fintechs and big technology companies that are taking stakes in banking businesses.

ALSO READ: PM Modi has 'healthy, extensive' interaction with Nobel laureate Abhijit Banerjee

Banks need to adopt defensive moves like improving risk management with advanced analytics and offensive moves such as dramatically lowering costs by outsourcing non-differentiated cost drivers to industry utilities.

"History tells us that 40 per cent of the top banks today will drop to the bottom half of peers in the next cycle. So the time for bold and critical moves is now," said Joydeep Sengupta, Singapore-based McKinsey Senior Partner and report co-author.

Sengupta further said that "moves made today, be it to build scale or restructure business models, will have a defining role in combating the probability of that slide".

On India, the report said revenue growth within India's banking sector has dropped from 22 per cent (2002-07) to 10.3 per cent (2010-18).

Moreover, banks in India have experienced a dramatic drop in 'Return on Tangible Equity' over the last five years, from 17.7 per cent in 2013 to 2.3 per cent in 2018, the report said.

It further said that Indian banks typically have a higher cost base, in part because many maintain large on the ground networks to serve rural customers.

As per the report, machine-learning models can improve predictive accuracy in identifying the riskiest potential customers by 35 per cent.

Banks should also consider their options for building scale or competence through inorganic ways including both mergers and acquisitions as well as partnerships.

Moreover, banks need to work hard to close the digital skills gap, as technology has overtaken banking in perceived attractiveness of compensation and benefits, the report noted.


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on are those of the comment writers alone. They do not represent the views or opinions of or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp