Indian banks could turn years of legacy technology spending from a drag into an advantage as artificial intelligence reshapes financial services, with BCG estimating an “agentic bank” could lift return on assets by nearly 100 basis points and cut cost-to-serve by 30% to 40%.
Indian banks eye AI gains from legacy tech spending
That matters because the biggest challenge for large lenders is no longer access to digital tools, but the patchwork of old systems that makes it hard to redesign operations end to end. BCG says banks that are less constrained by legacy infrastructure — including smaller cooperative and rural institutions — may be able to build AI-native operating models more quickly than larger peers.
The report, released at the Global Fintech Fest, argues that India’s financial system already proved it can skip technology generations, leaping from limited internet banking to mobile payments and digital public infrastructure. AI could let the sector repeat that leap, this time by rebuilding core functions around automation rather than layering new software on top of old architecture.
For investors, the appeal is straightforward: lower operating costs, higher productivity and better capital efficiency. BCG says an AI-enabled bank could nearly double assets per employee and bring cost-to-income ratios down to 25% to 30%, gains that would flow through to earnings quality if lenders can convert pilot projects into scaled deployment.
The opportunity also extends beyond margins. BCG says AI could bring more than 400 million underserved customers into formal financial services by improving underwriting for thin-file borrowers and lowering the cost of serving smaller accounts, a potential growth runway for lenders, payments firms and infrastructure providers.
The catch is execution. More than 80% of leaders surveyed by BCG already rank AI and generative AI as top priorities, and two in three plan to raise AI spending by at least 15%, but the report warns that banks must keep modernizing existing systems even as they build new AI-based operating models. For Indian lenders and fintechs, the next test is whether AI can move from cost-saving promise to measurable return on equity.
| Entity | Gains | Losses |
|---|---|---|
| Indian banks with lighter legacy tech | ▲Faster AI adoption, lower costs | ▼Less immediate scale advantage |
| Large legacy banks | ▲Long-term productivity upside | ▼Higher integration burden |
| Cooperative and rural lenders | ▲AI-native buildout path | ▼Need shared infrastructure |
| Customers and underserved borrowers | ▲Better access, cheaper service | ▼Less benefit if rollout stalls |
