Mumbai: The Indian banking sector is poised to become the world's third largest in asset size over the next 14 years, a report released here on Monday said.

"The domestic banking industry is set for an exponential growth in the coming years with its assets size poised to touch USD 28,500 billion by the turn of the 2025 from the current asset size of USD 1,350 billion (2010)" says an IBA-FICCI-BCG report, titled "Being five-star in productivity--Roadmap for excellence in Indian banking", prepared for the Indian Banks Association.

The report was released on the eve of the three-day IBA-FICCI-BCG (Indian Banks Association, FICCI and Boston Consultancy Group) bank summit beginning on Tuesday here. The summit will be launched by Reserve Bank Governor D Subbarao and will be attended by heads of banks and the four RBI Deputy Governors among others.

The report further says China will overtake the US as the world's largest banking industry by 2015, when it is expected that the asset size of Chinese banks will be nearly USD 30,000 billion, while that of the US will be around USD 28,000 billion. By 2025, the Chinese banks will have an asset size of over USD 1,15,000 billion, while that of the US it will be around USD 1,00,000 billion.

Releasing the report, Bank of Baroda chairman and IBA chief M D Mallya said, "the global banking crisis has highlighted the perils of irresponsible banking and through this theme of productivity excellence, we wanted to focus on the tremendous scope for our banks to improve their productivity and consequently, their profitability."

The report sets out an action agenda for banks, based on insights from an extensive productivity benchmarking exercise conducted across 40 banks which highlights that banks have to strive for excellence on five dimensions: branch sales and service, new channels, lean operations, organizational design and bad debt management.

Commenting on this, BCG India partner and director Saurabh Tripathi said, "within each of the five dimensions, the industry looks sound at an overall level but disaggregation of performance into components and comparisons with various players exposes significant scope for improvement,".

The report notes that domestic banks can improve sales if they increase their branch presence.

"Domestic banks deploy 62 percent of staff in customer-facing roles as against the benchmark of 82 percent observed by BCG globally," Tripathi said.

Among the new channels, mobile phones, propelled by 3G and smart phones, will emerge as an undisputed winner by 2020, potentially accounting for 20-30 percent of total transactions, says the report.

On efficiency, the report notes that the domestic banks are doing well overall with industry cost-income ratio below 50 percent. However, the survey says there is room for improvement.

"On an average, our banks have about 20 percent of staff deployed in back office processing (for some banks, as high as 40 percent) as against a global best of 10 percent," says the report.

"Should our banks embrace the above given ideas, they can break the compromise between profitability and serving low ticket-high risk business at reasonable margins. At the same time, the government and RBI have enabling and catalyzing roles to play", concludes the report.

(Agencies)