A Critique of the Boston Consulting Group’s Report on Banking in India
The Boston Consulting Group, an international consulting firm, in its report titled ‘Banking for a Viksit Bharat’, released together with Federation of Indian Chambers of Commerce and Industry and Indian Banks’ Association in September this year, claims that achieving the Viksit Bharat mission will require sustained momentum in the banking industry. It says that the banking sector’s success is instrumental in making India a developed nation. But both in its analysis of the banking sector and priorities it sets it makes claims that are neither conversant with the socio-economic context in which Indian banking operates nor geared towards ensuring inclusive well being. The All India Bank Officers’ Confederation and Centre for Financial Accountability call out the wrong diagnosis and misplaced priorities in the report in this response.
Executive Summary
Critique of BCG’s Role: Controversial Track Record in India
- BCG, a foreign consultancy firm, has been found promoting profit-maximizing strategies that ignore social contexts. It has advised both corporate and government sectors, often recommending controversial measures like job cuts under the guise of modernization.
- BCG’s past recommendations to Indian institutions, such as the State Bank of India (SBI), included restructuring HR policies and promoting “cross-selling” of products, which were detrimental to employee wellbeing and led to customer dissatisfaction. Their HR recommendations were critiqued for ignoring consultation with unions and eroding staff morale.
- Banking in a country like India have had a social role in uplifting those at the margins with credit support and by contributing to priority sectors. As such the market oriented recommendations of BCG do not suit our context and specificity.
Dubious Projections:
The BCG report projects unrealistic growth for India’s financial sector, aiming for a 10-fold GDP increase by 2047. This optimism is disconnected from the socio-economic realities of inflation, stagnant incomes, and declining public sector support.
The suggestion that India can attract $4 trillion in capital while ignoring the persistent issue of non-performing assets (NPAs) is particularly flawed.
Public vs. Private Sector Productivity:
BCG criticized public sector banks (PSBs) for inefficiency while praising private banks. However, PSBs handle far more customers per employee and cater to underserved regions. They also manage critical government schemes, which the private sector largely ignores.
Concerns Over Digital Push:
BCG’s endorsement of India’s digital financial infrastructure overlooks rising cybercrime and fraud risks recognised by RBI itself. The digital landscape, while innovative, lacks adequate security measures, as evidenced by the increase in fraudulent loan apps and cyberattacks. Moreover India requires infrastructure which creates more jobs rather than snatching them away.
Corporate Lending and NPAs:
BCG’s focus on retail lending growth glosses over the real issue: large-scale corporate defaults continue to plague India’s banking system, with significant write-offs endangering financial stability. Meanwhile, the Insolvency and Bankruptcy Code (IBC) has proven inefficient in resolving corporate NPAs.
Declining Depositor Benefits:
Interest rates on savings and term deposits have been falling, resulting in diminished returns for depositors, who are the backbone of the banking system. BCG’s push for more corporate lending without addressing depositor interests undermines trust in the sector.
Conclusion:
BCG’s market-oriented recommendations risk exacerbating existing inequalities in India’s banking sector by prioritizing corporate gains over public interest. The emphasis on privatisation and non inclusive productivity, without consideration for social and economic realities, could lead to further erosion of public sector banks’ role in financial inclusion.
Read the full critical response here: A Critique of the Boston Consulting Group’s Report on Banking in India