Indian banking set to become fifth largest by 2020: KPMG-CII report

Expects bank credit to grow 17% CAGR in medium-term leading to increased credit penetration

Indian banking sector is expected to become fifth largest in the world by the year 2020, KPMG said in a report prepared in association with the Confederation of Indian Industry (CII).

"If we look at statistics, India being one of the top 10 economies of the world and with relatively lower domestic credit to GDP percentage provides great opportunity for the banking sector to grow. Indian banking is expected to become fifth largest by the year 2020 and third largest by the year 2025," the KPMG-CII report on the banking sector said.

It expects bank credit to grow at 17% CAGR (compound annual growth rate) in the medium-term leading to increased credit penetration.

The need for having Indian banks among the top global banks is debated recently. The country's largest lender State Bank of India (SBI) is at the 38th position based on the size of assets, while India's largest private sector lender ICICI Bank is at 99th position. These are the only two Indian banks that figure in the list of top 100 banks in the world.

"In the international banking arena, size, innovation, efficiency and best standards of customer service alone matter. There is no substitute for innovation to survive and lead in the new-age banking. India continues to face the more fundamental challenge of financial inclusion," the Reserve Bank of India (RBI) said in its report on banking structure in the country.

According to the World Bank, India has around 3.5 ATMs and less than seven bank branches per 100,000 people as compared with OECD (Organisation for Economic Co-operation and Development), where there are nearly 30 branches and 90 ATMs per 100,000 people.

The KPMG-CII report said policymakers need to provide a facilitating policy framework and infrastructure support to ensure meaningful financial inclusion. "Further, there has to be collaboration among service providers with financial institutions partnering with telecom, technology, and consumer product providers to create an enabling environment," it said.