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Digital Banking in India Hits 25% Milestone, Says SMFG India Credit

  //business-finance.news-articles.net/content/202 .. ia-hits-25-milestone-says-smfg-india-credit.html
  Published in Business and Finance on Wednesday, December 10th 2025 at 6:05 GMT by moneycontrol.com

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Digital Banking in India Hits a 25 % Milestone, Says SMFG India Credit

A recent analysis released by SMFG India Credit—the Indian arm of Standard & Poor’s Global Ratings—has highlighted a key turning point in the country’s banking landscape: digital business now accounts for roughly a quarter of all banking activity. According to the report, the share of revenue, transaction volume and deposits that are generated through digital channels rose from just over 15 % in 2018 to 25 % in 2023. This steep climb is a testament to the rapid digitisation of finance in India and underscores the strategic imperative for banks to accelerate their digital transformation agendas.

The Numbers Behind the Trend

These figures are drawn from a combination of data sources cited in the article: the Reserve Bank of India’s (RBI) quarterly “Digital Banking Outlook” series, the annual reports of the top 12 banks in India, and proprietary analytics from the SMFG research team. The article also references the RBI’s 2023 guidelines that encourage banks to adopt “open banking” APIs, a move that is expected to further boost digital adoption.

What Drives Digital Growth?

The article pinpoints several drivers that have propelled digital banking to this milestone:

1. Ubiquitous Internet and Mobile Penetration – By 2023, India had over 700 million smartphone users, providing a ready audience for mobile banking apps, chat‑bot interfaces, and UPI payments.

2. Regulatory Support – The RBI’s “Digital Banking Guidelines 2023” incentivised banks to adopt risk‑based technology frameworks and to offer customer‑centric digital products. The guidelines also introduced a “Digital Banking Scorecard” that banks must publish quarterly, creating a competitive incentive for digital investment.

3. Fintech Partnerships – A wave of collaborations between legacy banks and fintech firms (e.g., Paytm Payments Bank, PhonePe, Razorpay) has opened new channels for cross‑selling and has reduced friction for end‑users.

4. Changing Consumer Behaviour – The younger, tech‑savvy cohort (18‑34 years) now constitutes over 50 % of all banking customers. Their preference for instant, friction‑free services has forced banks to rethink legacy channels.

5. Cost Efficiency – Digital channels cut down the cost per transaction by 30 % compared to branch‑based processes. This has allowed banks to lower product pricing and offer competitive interest rates.

Implications for Banks and Investors

SMFG India Credit’s report emphasises that the digital shift is not merely a trend—it’s a structural change that will affect banks’ profitability, risk profile and competitive positioning.

• Profitability: Digital transactions bring higher margins, as they rely on lower operating costs. Banks that are slow to adopt new technologies risk losing market share to nimble neobanks and fintech disruptors.

• Risk Management: The report notes that while digital channels reduce operational risk, they also introduce cyber‑security risks. Banks must invest in robust cybersecurity frameworks and data‑privacy compliance to safeguard customer trust.

• Capital Allocation: The SMFG rating hints that banks allocating 30–35 % of their capital to digital infrastructure are likely to see a higher risk‑adjusted return, potentially leading to an upgraded rating.

• Customer Acquisition: Digital channels reduce the average cost of acquisition (CAC) by 25 % compared to traditional branch acquisition, making it easier to scale customer bases rapidly.

The article includes a direct quote from Anita Singh, Head of Banking Analytics at SMFG India Credit:
> “Digital business is now a cornerstone of banking strategy in India. The 25 % share is a sign that customers are not just using digital tools for convenience—they’re using them as their primary banking channel.”

Challenges Ahead

Despite the gains, the article acknowledges that the digital revolution faces hurdles:

• Digital Literacy: While smartphone penetration is high, a sizable fraction of rural and lower‑income populations still lack digital literacy, limiting the potential for 100 % digital adoption.

• Infrastructure Constraints: Rural connectivity remains inconsistent, causing disparities in service quality.

• Regulatory Compliance: The rapid pace of digital product innovation often outstrips regulatory updates, creating a compliance risk.

• Cyber‑Threat Landscape: As banks migrate sensitive services online, the threat of phishing, ransomware, and data breaches escalates.

The article suggests that a phased, customer‑centric approach—paired with strong governance and continuous investment in cybersecurity—will be essential to overcoming these obstacles.

Looking Forward

The SMFG India Credit report projects that digital business could capture 30–35 % of total banking activity by 2025 if current growth trajectories continue. This projection is based on the RBI’s latest “Digital Banking Outlook” and the banking industry’s current capital allocation trends. The article also links to a detailed whitepaper titled “Future of Digital Banking in India: Challenges and Opportunities”, published by the RBI in December 2023, which provides deeper insights into policy frameworks and technology trends such as artificial intelligence, blockchain, and open banking APIs.

Conclusion

The rise of digital banking to a 25 % share of total business marks a watershed moment in India’s financial sector. The SMFG India Credit report not only quantifies this shift but also highlights the multifaceted implications for profitability, risk management, and regulatory compliance. As the industry moves forward, banks that successfully blend technology, customer experience, and robust governance are poised to reap the benefits of a digitally‑driven economy—while those that lag risk being left behind in a rapidly evolving landscape.