Measured AI adoption is key to banking innovation: Federal Bank CMO

As the world of banking rapidly evolves, the intersection of artificial intelligence, data, and customer experience is fundamentally reshaping India’s BFSI (Banking, Financial Services, and Insurance) sector. 

This transformation—along with the accompanying challenges—was at the forefront during the afaqs! BankFin 360 event held in Mumbai on November 25, where industry leaders gathered to analyse the future of finance. 

Among the sessions was a candid conversation with MVS Murthy, chief marketing officer of Federal Bank, who offered an insider’s perspective on navigating soaring customer expectations, regulatory hurdles, and the delicate balance between technology and human touch. 

Moderated by Sreekant Khandekar, co-founder and CEO of afaqs!, the dialogue explored how banks can remain resilient and relevant in an era defined by impatience, innovation, and the enduring need for trust.

Rising customer expectations and new pain points

Murthy, who has spent over two decades in the BFSI space, began by reframing the idea of customer pain points. According to him, dissatisfaction has less to do with service quality declining and more to do with expectations rising sharply. 

“The level of service has been democratised,” he said, pointing out that today’s banking customers are also using fintech apps, e-commerce platforms, and global travel services. “He’s trying to equate the level of service and saying, this is the gold standard I want to have. Hence, the pain points have only increased.”

Murthy highlighted two pain points that did not exist two decades ago. The first is an account freeze due to heightened cybersecurity surveillance. “It’s a shock to a customer when suddenly he cannot go out and do a transaction,” he said. 

The second is increased monitoring of transactions, where fund transfers may be paused until a reason is provided. These, Murthy stressed, are not temporary inconveniences. “These pain points are not going to go,” he said, adding that they reflect a larger responsibility toward national economic security in an increasingly porous global financial system.

Impatience, not dissatisfaction, is the real challenge

Khandekar pointed to a seeming paradox: even as technology has made banks more responsive, dissatisfaction continues to surface publicly. Murthy pushed back on the idea of dissatisfaction. “I would say impatience is going up, not dissatisfaction.” 

With most consumers holding multiple bank accounts, service levels across leading banks are largely similar. What has changed, he argued, is behaviour. “We are all public figures now because of social media,” Murthy said. He noted that customers often take complaints straight to platforms such as X or Instagram instead of first approaching a branch or call centre. This public escalation, he said, fuels impatience rather than resolution.

AI as an enabler of efficiency

Murthy made it clear that the biggest contribution of AI will not be personalisation as commonly understood, but rather efficiency. “AI will definitely increase efficiencies of transactions, increase efficiencies of experiences, and allow us to anticipate what the customer is going to want,” he said. 

Personalisation, he argued, is a byproduct of efficiency at scale. Using a simple analogy, Murthy explained that knowing when a guest prefers black coffee and delivering it quietly is as much a mark of efficiency as it is of personalisation.

“AI allows you to do this for every person in the room,” he said, something that was impossible earlier due to constraints of speed and scale.

AI’s role in the $2.75 trillion BFSI industry

Looking ahead, Murthy placed AI’s impact within the sheer scale of India’s banking industry.

“BFSI is a $2.75 trillion industry today,” he said, adding that with India targeting a $7 trillion economy by 2030, banking already accounts for roughly 27% of GDP.

Regulatory changes such as the allowance of foreign direct investment in banks and the ability of Indian banks to fund mergers and acquisitions domestically and globally are expanding the sector’s footprint. 

Murthy asserted that the banking industry will closely follow the progress of the Viksit Bharat initiative.

AI at the marketer’s table

In this context, AI becomes critical for marketers and bankers alike. Murthy pointed out how intelligence tools now allow leaders to understand new markets and cultures faster than ever. 

“Earlier I would have had to go and do a recce, understand the place,” he said. “Today I can ask ChatGPT what kind of consumer market a country has and whether it makes sense to invest.”

Within Federal Bank, AI adoption is already visible, though not yet at full scale. AI now handles a significant portion of my communication. AI is producing videos. My newsletters are being done by AI,” Murthy said. 

He added that all 18 members of his team have undergone some form of AI training. Operationally, AI is being used to predict ATM cash requirements and explore customer risk profiling.

“Is it at scale? No, it is not,” Murthy admitted, stressing that BFSI will be one of the largest consumers of AI but will move cautiously due to regulation. “We are a very regulated entity, and it is for good,” he said.

Human connection remains at the core

When asked whether AI risks diluting human warmth, Murthy returned to Federal Bank’s long-standing positioning: digital at the fore and human at the core. 

“In Hindi, it’s ‘Rishta aap se hai, sirf app se nahi’,” he said. According to Murthy, the bank’s culture of empathy, shaped by its people and branch-level interactions, ensures that technology enhances rather than replaces human connection. 

He cited Federal Bank’s attrition rate of under 2%, compared to an industry average of 28–33%, as evidence of a strong service culture. He also noted that 42% of the bank’s workforce comprises women, long before diversity became a boardroom priority.

AI and human intelligence in call centres

In call centres, Murthy acknowledged that cost-cutting and automation had reduced human-led interactions in the past. However, AI is now reversing that dynamic. 

“Because of artificial intelligence, human intelligence is getting a premium,” he said. AI-powered voice systems, vernacular workflows and seamless handoffs to human agents are enabling better first-call resolution while preserving trust.

Balancing risk and innovation

As the conversation turned philosophical, Murthy spoke about the tension between experimentation and caution in banking. “Banking is supposed to be risk averse,” he said, even as AI encourages rapid innovation. Reconciling the two, he concluded, requires balance. “Zindagi mein thehraav zaroori hai.”

He elaborated that measured adoption is critical because, in banking, trust is the ultimate currency. “What other businesses would have thought is that evolution and trust are the currency. For us, trust has been the most fundamental thing,” Murthy said.

He distinguished between being a maverick and an innovator, noting that Federal Bank prefers the latter: gradual, calculated adoption of new technologies rather than rushing experiments.

Murthy also praised the role of regulators in this process. “The regulator has been extremely strict but also progressive, anticipating what’s happening in technology,” he said. He highlighted that today, regulators guide how to use AI, manage data, and maintain privacy, creating a safe framework for innovation. 

“It’s fantastic to see big tech companies engaging with regulators first, even before industry participants, and that is a very good thing for the sector.”

(The event was supported by ARM Worldwide as Co-Partner, Teamology as Digital Strategy Partner, Techmagnate as Powered By Partner, ReBid as Silver Partner and Benson as Trophy Partner.)