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BFSI's risk index rise amid global economic stability, says CIRI report

The overall Risk Index of the Banking, Financial Services and Insurance (BFSI) sector in India increased to 66 in 2024 from 64 in 2023, according to the Corporate India Risk Index (CIRI) developed by ICICI Lombard and Frost & Sullivan. The rise is attributed to global economic instability triggered by inflation and geopolitical tensions, which posed considerable challenges to financial markets. 'Volatility in global stock markets and fluctuating interest rates created uncertainty for banks and insurance companies, compelling them to re-evaluate their risk exposure and diversify their portfolios to minimise financial losses,' the report stated. Banks also had to manage an increase in non-performing assets (NPAs), particularly in public sector banks, which required greater focus on credit risk management. Regulatory scrutiny around data privacy, cybersecurity and anti-money laundering intensified in 2024, prompting institutions to invest significantly in cybersecurity infrastructure. The introduction of tighter Know Your Customer (KYC) norms and enhanced oversight of digital lending platforms also led BFSI firms to make significant adjustments to their compliance frameworks. Competition from non-banking financial companies (NBFCs) and fintech startups intensified as these entities introduced innovative solutions tailored to niche markets and underserved segments. This has compelled traditional financial institutions to continuously innovate and prioritise financial inclusion. 'As a result, the BFSI sector accelerated its focus on financial inclusion, pushing for greater penetration in rural and semi-urban areas through digital banking services and low-cost insurance products,' the report added. The insurance segment also witnessed steady growth, fuelled by increasing awareness around health, life and general insurance. This was supported by rising disposable incomes and a shift in consumer mindset towards risk mitigation. While the overall risk index rose, the Risk Management Index of the BFSI segment dropped slightly to 66 in 2024 from 67 in 2023. This suggests that although the sector continued to implement robust mitigation strategies—such as digitalisation, improved cybersecurity and compliance—the magnitude of external risks grew more significantly. Despite these challenges, the BFSI sector's proactive risk strategies, including strengthening liquidity buffers, diversifying investment portfolios and enhancing digital infrastructure, enabled it to navigate volatility effectively. The segment also made notable advances in technology adoption, particularly in digital banking, artificial intelligence (AI) and blockchain, to improve customer experience and operational efficiency. Digital payment systems continued to expand rapidly, backed by strong government support and increased demand for contactless transactions—further propelling India's push towards a cashless economy. AI was widely adopted for fraud detection, customer support and personalised services, helping reduce operational costs while enhancing service quality.