Banks perform two very different functions. One is commercial: they raise deposits, take credit risk and earn returns by allocating capital. The other is a public utility: they move payments, maintain accounts and ensure cash and settlements work flawlessly. The utility function has almost no tolerance for failure and generates little profit. It exists because the commercial side pays for it.
It is fashionable to ask whether banking has produced any meaningful innovation since the ATM. The answer is yes, although much of it has happened out of sight. Over the past four decades, innovation has transformed both halves of banking. Only one, however, is visible to customers.
UPI, NEFT and RTGS access without visiting a branch are utility side innovations that sit on every smartphone. They have rightly become symbols of India's digital success.
The commercial side has been no less innovative, but its achievements are structural rather than visual. Cross currency swaps and derivatives enabled global capital to move into emerging markets at unprecedented scale. That helped finance the Asian economic miracle, Southeast Asia's industrialisation, China's rise and India's integration into global trade and capital markets.
Floating rate loans and interest rate swaps allowed banks to manage risk more efficiently instead of charging borrowers far wider margins. Securitisation expanded mortgage and vehicle finance by allowing lenders to recycle capital and spread risk. Most borrowers never notice these innovations, yet they shape the price and availability of credit every day.
These advances depend on something less glamorous than technology: stable regulation and credible supervision. Banking innovation flourishes where markets trust institutions to prevent crises rather than merely clean up after them.
The difficulty is that these reforms often remain invisible for years before their benefits become obvious. Democracies naturally favour policies that voters can see within an electoral cycle. That partly explains why India has excelled at utility side banking innovation while making slower progress on the commercial architecture beneath it.
Quiet Foundations
The latter isn't absent — it's work in progress. A stream of measures, scale-based supervision, initiation of expected credit losses (ECL), account aggregator, Basel III finalisation, climate risk framework, and a few steps on securitisation. The scaffolding is going up. But scaffolding is not the same as a functioning market, and unlike UPI, you cannot see whether a securitisation framework or a derivatives market is being used well simply by looking at it. It has to be measured.
India's corporate bond market remains shallow by advanced economy standards, revealing where the next stage of reform must focus.
Closing it requires three things, each with a distinct owner.
The first priority is building a deep and credible corporate bond yield curve that markets trust for pricing. More corporate borrowing should move through bond markets rather than remain concentrated on bank loan books. That is also essential for a vibrant securitisation market because securitised assets require reliable benchmarks for pricing. Yet, regulatory incentives largely favoured traditional lending over bond financing and securitisation.
Second, while ECL creates the initial set of right incentives, it works only if supervisory capacity keeps pace. Implementing ECL is technically demanding. It requires expertise in credit modelling, data governance and risk analytics, alongside consistent supervisory standards. Without that capability, implementation risks becoming uneven. Just as motorists are likely to drive recklessly on roads without speed cameras, weak supervision encourages institutions to cut corners.
The final challenge is talent.
Who do you turn to for such massive transformation? Over the past decade, some international jurisdictions have built sophisticated banking ecosystems by drawing on top bankers, consultants, and supervisors. India has yet to develop the same habit of matching expertise to complexity. Too often, for example, in professional mandates, institutional pedigree substitutes for deep technical capability. At the same time, many of India's most experienced banking and risk professionals continue to build careers in the US, Europe, Canada and West Asia.
India needs to deliberately cultivate a class of assurance professionals whose expertise spans credit risk, derivatives, securitisation, ECL modelling and Basel standards. These professionals should be capable of conducting genuine governance assessments rather than compliance exercises. Over time, their reputations, not merely their certifications, should become trusted market signals.
From the perspective of an outside analyst, the encouraging development is that these reforms are finally moving despite offering few immediate political rewards. That matters because the next phase of banking reform will not be measured by how quickly consumers adopt another payments app. It will be measured by whether India builds deeper capital markets, stronger supervision and more sophisticated risk management.
India has already shown it can build banking infrastructure that the public sees every day. Its next leap depends on building the infrastructure that most people will never notice.
.png)
