Banking assets of emerging nations are likely to overtake that of G7 economies by the year 2050, with India likely to emerge as the third largest domestic banking market in the world in the next three decades, says PricewaterhouseCoopers.
According to a PwC report, total domestic credit in the E7 economies (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) is likely to overtake total domestic credit in the G7 economies within the next 40 years.
The analysis also suggests that India is likely to be the fastest growing of the E7 economies and could grow faster than China in the long run.
"China will continue to grow somewhat faster than India over the next 5-10 years, but after that Chinese growth will be held back by its rapidly aging population (due in large part to its one child policy) and diminishing returns to its investment-led strategy," the study said.
In contrast, India and other emerging economies like Brazil, Mexico, Indonesia and Turkey have much younger populations and faster-growing labour forces.
The banking sector in the seven emerging markets are not going to "rival" those in India and China in terms of size, but by the year 2050, they could be of the same order of magnitude as the banking sectors in countries like France and Italy from the much lower levels today.
"The banking world in 2050 will look radically different from the one we see today, with the E7 economies becoming at least as important as the G7," the report said.
Many E7 economies already have relatively profitable banking sectors, and our estimates suggest that total profits from domestic banking in the E7 will be around half those in the G7 by 2025 and larger than in the G7 before 2050, the PwC report said.
At present, the weight of the E7 in global banking assets is low so the global average looks close to the G7 average. However, overtime, this is going to change with the E7 ratio rising much faster than the G7 ratio so that "near convergence is achieved by 2050".
Retail banking sectors in emerging market economies are likely to see particularly rapid growth, since mortgage and consumer credit lending is generally not well developed yet in these markets compared with corporate and government lending.
Besides, in the next few decades E7 banks will also become major competitors in the global "war for talent".
The signs are already visible, with Russian banks hiring investment bankers from London, Chinese banks importing the US or European executives, and Indian banks attracting staff with experience of working for major G7 institutions.
"As the E7 banks internalise the knowledge of these staff, so their competitiveness in both domestic and global markets will increase," the report said.
However, some major E7 banks may also come under foreign ownership, the study said.