Banks need to strengthen profitability, boost returns

New Delhi: At a time when growth is slowing, productivity gains are fading and digital pressures are on the rise, the banking sector should urgently consider radical measures to strengthen profitability and boost returns, says a report.

The McKinsey's Global Banking Annual Review launched on Tuesday, warned that the bottom third of banks need to rapidly reinvent their business models in the face of continued threat posed by fintechs and big technology companies that are taking stakes in banking businesses.

Banks need to adopt defensive moves like improving risk management with advanced analytics and offensive moves such as dramatically lowering costs by outsourcing non-differentiated cost drivers to industry utilities.

"History tells us that 40 per cent of the top banks today will drop to the bottom half of peers in the next cycle. So, the time for bold and critical moves is now," said Joydeep Sengupta, Singapore-based McKinsey Senior Partner and report co-author.

Sengupta further said that "moves made today, be it to build scale or restructure business models, will have a defining role in combating the probability of that slide".