BFSI market cap soared over 50x in two decades, powered by digitalization and fintech

The sector’s share in Nifty's earnings has risen to 33% in FY24 from 16% back in FY10, helped by asset quality, loan growth, and lower provisioning.

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In a note highlighting the growth in India's BFSI space, Motilal Oswal on April 22 said it believes the next phase in the sector will witness hyper-personalized banking experiences, driven by AI and decentralized finance, along with a growing adoption of Central Bank Digital Currencies (CBDCs).

The note added that ICICI Bank, HDFC Bank and SBI remain its top largecap picks, while Federal Bank and AU Small Finance are the midcap recommendations.

Over the past two decades, the market capitalisation of India's BFSI space has grown more than 50-times to Rs 91 lakh crore in 2025 from Rs 1.8 lakh crore in 2005, at a CAGR of ~22%.

"While banks remain the backbone, their share in the total BFSI sector market cap has declined to ~57% at present from 85% in 2005. This shift is largely due to the emergence of segments such as NBFCs and fintech firms, backed by technological shift and innovation," the note added. Fintechs, which did not exist before 2015, now have a market cap of over Rs 12 lakh crore, listed and unlisted combined. This rising digitalization and evolving consumer preferences offers 'significant high-growth investment opportunities', said MOSL.

"The BFSI sector has undergone a profound transformation driven by digitalization, regulatory reforms, the growth of fintechs, and demographic dividends," said MOSL.

The sector’s share in Nifty's earnings has risen to 33% in FY24 from 16% back in FY10, helped by asset quality, loan growth, and lower provisioning. Its weight in the Nifty 50 Index has risen to 37.9% in April 2025 from 14.6% in FY04, powered by HDFC Bank and ICICI Bank, while among PSU banks, only SBI remains in the index. The share of NBFCs peaked in FY20 but later fell due to the HDFC’s merger into HDFC Bank.

MOSL said India's retail credit has seen significant growth, with its share of GDP rising to 18% in FY25 from 9% in FY14. "This growth has been driven by private banks, increasing digitalization, emergence of fintech platforms and relentless efforts by the regulator to promote financial inclusion," the note added. The growth in consumer lending has been helped by rising disposable income, technology advancement, and improved credit models, has broadened access to housing, vehicle, and personal loans.

The note also highlighted the growth in deposit accounts, which have more than doubled over the past decade, fuelled by Jan Dhan Yojana and financial inclusion and greater banking penetration. Deposit accounts per capita now stands at 1.90 in FY24 from 0.63 in FY10, underscoring higher formalization.

The growth of BFSI has also been helped by the emergence of UPI as a payment gateway, now accounting for 93% of total digital transactions as against 68% in FY21. UPI's transaction value has now risen from 1% of GDP in FY18 to 71% in FY25.

Fintechs like PhonePe, Google Pay, Groww and Paytm have cornered market share and are increasingly collaborating with traditional finance players have led to cost-effective, tech-driven solutions thus driving the rapid growth of the sector while providing an improved customer experience. Fintech companies have attracted significant capital investments and we note that the new-age companies accounted for 10% of incremental market cap of entire BFSI sector over FY20-25.

Motilal Oswal said HDFC AMC and UTI AMC are gaining traction, helping BFSI's weightage in the BSE 200 index to rise to 31.4% in 2025 from 18.2% in 2014.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​​​