In the dynamic landscape of the Indian banking sector, staying competitive and achieving business excellence have become paramount objectives for financial institutions. The rapid advancements in technology, evolving customer expectations, and increasing regulatory scrutiny have created a challenging environment.

The Indian banking industry, like its global counterparts, is witnessing significant disruptions driven by technological advancements, regulatory changes, and the emergence of fintech players. Customer preferences are evolving, and they demand seamless, personalised, and convenient banking experiences. Furthermore, with the rise of digital banking and mobile payment solutions, traditional banks face fierce competition from new entrants that operate with greater agility and lower overheads. This article explores, in comprehensive detail, why operational efficiency is paramount for Indian banks, the challenges they encounter, the strategies they employ, and the road ahead as they strive to achieve business excellence and remain competitive in today's dynamic financial sector.

Significance of operational efficiency

Operational efficiency is the backbone of any successful organisation, and the banking industry is no exception. It encompasses a wide range of aspects, including process optimisation, digital transformation, workforce productivity, risk management, and cost control. By enhancing operational efficiency, Indian banks can streamline internal processes, reduce overheads, and allocate resources more effectively. This, in turn, enables banks to redirect their efforts towards delivering superior customer experiences and developing innovative products and services.

Performance of Scheduled Commercial Banks (SCBs) in India

Figure 1 describes the performance of commercial banks by analysing the composition of balance sheets and SCB profitability ratios. The share of PSBs in the consolidated balance sheet of SCBs declined from 58.6 percent at the end of March 2022 to 57.6 percent at the end of March 2023, while PVBs gained a share from 34.0 percent to 34.7 percent. At the end of March 2023, PSBs accounted for 61.4 percent of total deposits of SCBs and 57.9 percent of total advances.

Figure 2 describes the trend of improvement in the profitability of SCBs, which began in 2019-20 and continued for the fourth consecutive year in 2022-23, aided by higher income and lower provisions and contingencies. Both return on assets (RoA) and return on equities (RoE) improved in 2022-23.

The Financial Stability Report of RBI December 2023

The Indian economy and the domestic financial system remain resilient, supported by strong macroeconomic fundamentals, healthy balance sheets of financial institutions, moderating inflation, improving external sector position and continuing fiscal consolidation.

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