What Software Is Used in the Banking Sector in India

The Indian banking sector operates at a scale and complexity unmatched globally. It oversees complex regulatory requirements from the RBI According to The Economic Times¹ handles over 19 billion transactions every month through UPI, and is responsible for both financial inclusion and hyper-personalization for urban digital consumers. In this environment, the software a bank uses is not merely an expense; it is the primary engine of growth and risk management.

To succeed, Indian banks must evolve their software from legacy systems of record to intelligent, real-time platforms of innovation. This transition is centered entirely on the reinvention of the Core Banking System (CBS).

1. The Legacy Foundation: The Core Banking System

At its most basic, every bank’s functionality revolves around its Core Banking System. This is the single, centralized technology backbone responsible for:

• Maintaining the General Ledger (GL).
• Managing customer accounts and balances.
• Processing deposits, withdrawals, and inter-bank transfers.
• Ensuring regulatory compliance (KYC, AML).

For decades, the Indian banking landscape has been dominated by a few major software vendors providing these core banking platforms:

• Infosys Finacle: A ubiquitous presence across both large Public Sector Banks (PSBs) and private lenders.
• TCS BaNCS: A robust system also deeply embedded in the Indian and global banking ecosystem.
• Other Vendors: Specialized platforms and localized solutions that handle regional co-operative and smaller banks.

These platforms delivered the first major core banking benefits: Centralized Online Real-time Exchange (CORE), which allowed a customer to transact from any branch nationwide. However, the common implementation in India was monolithic—a vast, tightly coupled block of code. This architecture, while stable, is the root cause of every subsequent digital bottleneck.

2. The Patchwork Era: Functional Software Stacks

Because the monolithic core banking system is notoriously difficult, slow, and expensive to change, Indian banks adopted a strategy of building specialized software stacks around the core to meet specific business demands:

• Digital Channels Layer: Custom mobile banking apps, web portals, and chatbot interfaces.
• Payments Hubs: Dedicated, high-speed middleware systems created specifically to interface with NPCI’s Unified Payments Interface (UPI), NEFT, and RTGS, protecting the slower core from the volume shock.
• Digital Lending Solutions: End-to-end platforms for automated loan origination, document verification using India Stack (Aadhaar, DigiLocker), and credit decisioning.
• Regulatory & Risk Reporting: Separate software layers dedicated to aggregating core data for RBI filings, Basel III reporting, and enhanced fraud monitoring (Anti-Money Laundering/AML).

While this functional patchwork enabled some early digital wins, it created severe data silos. The lending system is fast, but it must wait for the core banking platform to update the actual ledger balance in a slow batch process, leading to reconciliation errors, increased costs, and frustrated customers. Crucially, this brittle architecture is the primary cause of unscheduled downtime. With the RBI strictly penalizing technical outages and barring banks from issuing new credit cards or digital customers until stability is proven, the ‘patchwork’ approach has become a severe regulatory liability.

3. The Indian Mandate: Scale and Efficiency

The urgency for Indian banks to modernize is driven by internal competition, regulatory pressure, and the hyper-scale of the digital economy. The legacy core banking architecture is simply unfit for this environment.

Statistic Spotlight 1: The Efficiency Imperative

India’s fierce competition and high operational costs mandate superior digital efficiency to maintain healthy margins. Modernizing the core banking system directly addresses the cost-to-income ratio (CIR)—a key metric for bank profitability. According to research by McKinsey & Company², banks in emerging markets that successfully implement end-to-end digital journeys (powered by modern, componentized cores) are achieving an average 15-20% improvement in their Cost-to-Income ratio within three years through automation of back-office and middle-office tasks like reconciliation and customer onboarding. This efficiency gain is critical for Indian PSBs to compete effectively against private-sector counterparts that have higher digital adoption.

Statistic Spotlight 2: Time-to-Market for Digital Inclusion

The RBI often mandates quick pivots for regulatory compliance (e.g., changes to digital lending guidelines) or market changes (e.g., new types of micro-loan products for financial inclusion). The agility of the underlying software dictates a bank’s ability to serve these needs. A study by Forrester³ found that Indian financial institutions that shifted from monolithic core banking architecture to modular, cloud-ready platforms saw a reduction of up to 60% in time-to-market for launching new, compliant credit products. This immense speed allows banks to quickly address underserved segments, such as micro, small, and medium enterprises (MSMEs), and adhere to immediate regulatory changes without massive system overhauls.

4. The Necessary Architectural Evolution

To harness these opportunities, the banking sector must adopt a new core banking architecture that can handle UPI’s volume, reduce the CIR, and accelerate innovation. The contemporary “composable” core embodies this architectural change.

This composable approach moves the core banking system away from a single, rigid product and toward a flexible ecosystem defined by four fundamental principles:

1. Modularity: Breaking down the core into small, interchangeable services (like ‘Account Service’, ‘Interest Service’, ‘Lending Service’). This allows for surgical upgrades and quick fixes without affecting the entire system.
2. API Connectivity: Using Application Programming Interfaces (APIs) as the universal language for all components. This is essential for securely plugging into India Stack, FinTech partners, and regulatory sandboxes.
3. Cloud-Native Design: Building the system to run on public cloud infrastructure from the ground up. This provides the infinite, instantaneous scalability required for national-level transaction volumes and minimizes the cost of managing proprietary data centers.
4. Embedded Intelligence: Integrating AI/ML models directly into the transactional flow, allowing for real-time fraud scoring, predictive liquidity management, and instant, contextual compliance checks.

5. The Convergent Core: Why a New Platform is Essential

The term eMACH.ai refers to a generation of core banking solutions that inherently embody the four principles above. Instead of focusing on the acronym, let’s look at the strategic power this unified, modern platform delivers:

This new core banking platform is the definitive answer to India’s unique challenges because it achieves operational harmony:

Real-Time Everything, Driving Scale

The platform shifts the entire operational paradigm from periodic batch processing (which causes delays and data silos) to event-driven processing. In this model, every action—a customer swipe, a deposit, a regulatory change—is an event that instantly triggers immediate updates across all related systems. This is vital for maintaining the integrity of the ledger under the immense, non-stop pressure of UPI volumes and instant lending cycles. The bank instantly obtains a single, consistent version of the truth across all channels by functioning in real-time.

Unmatched Agility through Modularity

Instead of being trapped in a monolithic code base, the modern core banking solution is composed of independent, highly-focused modules. Only the pertinent “Customer Identity Service” module needs to be updated and redeployed if the RBI modifies a KYC requirement.  Because of this modularity, banks can react to changes in regulations and threats from the competition with unprecedented speed, reducing development cycles from several months to just a few weeks.. Furthermore, this componentized structure allows banks to incrementally “strangle” and replace older legacy parts, reducing the risk of a single, massive core replacement project.

Intelligence Woven into the Fabric

The function of artificial intelligence is the most important evolution.  AI is included right into the transactional modules rather than being an add-on feature.  For instance, an AI model uses alternative data sources to rapidly evaluate risk when a loan application is filed, enabling automated, equitable, and quick judgments for previously unbanked sectors.  The core banking system becomes a potent, predictive decision engine thanks to this embedded intelligence, which also lowers fraud and automates compliance.

In the rapidly evolving Indian market, this next-generation core banking platform is no longer a high-cost luxury but a mandatory infrastructure upgrade. It provides the core banking benefits necessary—resilience under scale, compliance agility, and hyper-speed innovation—to secure market leadership in the digital era.

Frequently Asked Questions (FAQs)

1. How does a modern core banking platform specifically integrate with India Stack (UPI, Aadhaar, DigiLocker)?

The foundation of contemporary core banking platforms is API connectivity. This enables a smooth and safe connection between the India Stack and the bank’s core services (such as fund transfers and customer onboarding) through public APIs. For instance, a bank can use the platform’s APIs to authenticate papers using DigiLocker and conduct instantaneous, paperless KYC by connecting to Aadhaar data, all of which are controlled within the new core’s compliance and security limits.

2. What is the greatest operational risk of sticking with a monolithic core banking architecture in the Indian context?

The incapacity to grow rapidly at periods of high demand, such as holiday seasons or unforeseen regulatory changes, is the biggest operational risk. Because a monolithic core banking system cannot scale selectively, it must be over-provisioned to manage transaction peaks, which results in significant inefficiencies and high IT costs (bad Cost-to-Income ratio). Furthermore, any single update can introduce system-wide instability.

3. How does this new core architecture support financial inclusion (Jan Dhan Yojana, MSME lending)?

The modern, componentized core banking solution supports inclusion by enabling low-cost product delivery and intelligent risk assessment. Modularity allows banks to launch highly specific, low-cost micro-loan products quickly. More crucially, Embedded Intelligence uses AI models trained on alternative data (non-traditional credit history) to accurately assess risk for customers who lack a formal credit bureau history, making lending to MSMEs and rural populations feasible and profitable.

4. Is moving to a modern core an all-at-once “rip and replace” project for large Indian PSBs?

No. The “Strangler Fig” technique, a staged migration, is enabled by the new core banking architecture’s Microservices-based design. Banks can start by picking a low-risk area (like term deposits) and implementing a new, cloud-native microservice to replace only that one component. As more and more services are transferred to the latest, flexible core banking platform, the old monolithic core is progressively “strangled” to reduce risk and disturbance to the enormous public operations. This approach not only reduces risk but accelerates Time-to-Revenue. Instead of waiting 2 years for a full core overhaul, the bank can launch a new ‘Gold Loan’ or ‘MSME’ module in just 3-4 months on the new core, generating revenue while the migration continues in the background.