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Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
Banking Sector and Opportunities in India
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Banking Sector and Opportunities in India

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  • 1. Banking Sector and Opportunities in India March 2004
  • 2. Agenda Economic backdrop Banking sector - overview & opportunities In summary
  • 3. Indian economy - Strong fundamentals GDP growth Forex reserves Exports
    • Ten year average of 6.0%
    • US$ 90 billion
    • US$ 50 billion in FY2003
  • 4. Indian economy - Strong fundamentals Interest rates Short term debt External debt
    • 6.5% decline in last five years
    • 0.8% of GDP
    • 20% of GDP
  • 5. Diversified composition, robust growth Sectoral share of GDP Sector 22.1 Agriculture 21.8 Industry 56.1 Services Projected growth FY2004 (%) 10.7 5.0 7.3 GDP 7.4
  • 6. Strong growth drivers… Services
    • Information technology
    • Business process outsourcing
    • Financial services
    • Entertainment, media, travel & tourism
    Industry
    • Strong domestic demand
    • Improving competitiveness – lower interest rates, increased productivity, better working capital management, deleveraging
    • Export thrust
    Agriculture
    • Favourable climatic conditions with good monsoon
    • Modernisation of agriculture – scale and farming methods
  • 7. …underpinned by strong infrastructure growth… Roads
    • Construction of Golden Quadrilateral and North-South, East-West corridors
      • 13,000 km long - world’s largest single highway project
    • Boosting demand for steel, cement, commercial vehicles
    Industry
    • Basic telephone subscriber base of 39.9 million, growing at an average rate of 23% over last 7 years
    • Cellular subscriber base of 11.7 million, growing at an average rate of 88% over last 6 years
    • Positive impact on efficiency of firms and services exports
  • 8. …though certain areas require close attention
    • Certain mis-steps have constrained development in this sector
    • Now being corrected through policy initiatives
      • Electricity Act passed by Parliament
      • New focus on creating capacities as well as enhancing transmission and distribution efficiency
    • Need for urban rejuvenation – housing, roads, utilities
    • Local bodies in several cities taking initiatives in this area
    Power Urban infrastructure
  • 9. Changing demographic profile … high proportion of younger, working population driving growth Source: Ministry of Home Affairs, Government of India
  • 10. Robust household savings pattern Source: Economic Survey 2002-2003, Ministry of Finance 10.1% 22.5% Household savings as a % of GDP 2001-02
  • 11. Large inflows of foreign currency Gross forex inflows (US$ billion) 58.25 67.13 79.44 25.60 ~ ~ Source: Economic Survey 2002-2003, Ministry of Finance; RBI 95.23
  • 12. Strong external position Forex reserves & external debt (US$ billion) ~ ~ Source: RBI
  • 13. Enhanced corporate competitiveness Return on Equity (PAT / Equity) Asset turnover (Revenue / Assets) Source: Deutsche Bank
  • 14. The above developments are the result of a decade of reform…
    • Focus on globalisation
      • Opening up of the economy
      • Thrust on export led growth
      • Deregulation to encourage technology & capital flows
      • Integration with international financial markets
    • Key reform measures
      • Lowering of tariff barriers and liberalised imports
        • Average tariff reduced from 53% to 18% in last 5 years
      • Full convertibility of the rupee on current account
      • Permitting domestic companies to access foreign capital markets
      • Substantial liberalisation of restrictions on foreign investment
  • 15. ..driving transformational change
    • Dramatic growth of services sector
      • Over 50% of GDP
      • Significant contributor to exports
    • Restructuring of manufacturing sector over the past decade
      • Early 1990s: capitalising on domestic demand
      • Mid- to late 1990s: restructuring to achieve world-class efficiency
      • 2000: Articulation of international competitiveness
  • 16. The underlying fundamentals are based on a deep structural change in the economy and provide a sustainable platform for continued growth. The opportunities in the banking sector have to be viewed in this context.
  • 17. Agenda Economic backdrop Banking sector - overview & opportunities In summary
  • 18. A decade of change and evolution… Pre-reform
    • Extensive regulation
    • Focus on industrial sector
    The 1990s Today Indian economy Financial sector ..financial sector mirroring macro-economic change
    • Liberalisation
    • Globalisation
    • Structural change – services
    • Resilient industry
    • Buoyant services sector
    • Highly segmented
    • Public sector dominance
    • Opening up of various sub-sectors
    • Private sector participation
    • Diversified financial groups
    • Globally benchmarked
  • 19. The banking sector today Depth
    • Countrywide coverage
    • Large number of players
    • Increasingly sophisticated financial markets
    Technology
    • Increasing use of technology in operations
    • Poised to expand and deepen technology usage
    Diversification
    • Emergence of integrated players
    • Diversifying capital deployment
    • Leveraging synergies
    Regulation
    • Robust regulatory system aligned to international standards
    • Efficient monetary management
  • 20. Sector snapshot Size
    • Total assets of US$ 335 billion
    • Total deposits of US$ 279 billion
    Number of banks
    • Over 290 scheduled banks
      • Public sector: 27
      • Private sector: new – 9; old – 24
      • Foreign: 37
      • Over 190 regional rural banks
    Branch network
    • Over 66,000 branches
      • Public sector: 46,000
      • Private sector: 5,500
      • Foreign: 190
      • Regional rural: 14,400
  • 21. Structural issues
    • Non-performing assets
    • Legacy systems
      • Low levels of technology
    • Seller’s market mindset
      • Low level of innovation in products and services
      • Limited responsiveness to customers’ needs
    The Indian banking sector has responded to these structural issues by adopting certain strategic imperatives
  • 22. Legacy issues addressed…
    • Challenges of a changing competitive environment
      • Small and unviable pre-liberalisation units
      • Large investments post-liberalisation impacted by global commodity cycles and high interest rates
    • Supportive legal and regulatory changes
      • Setting up of Debt Recovery Tribunals and enactment of SARFAESI Act, reducing delays in enforcement of security and creating effective legal deterrent
      • Corporate Debt Restructuring Forum for restructuring viable companies
      • Enabling framework for asset reconstruction companies
    • Proactive approach to resolution and increase in provisioning levels in the system
  • 23. …with significant success in resolution
    • Position much stronger than other Asian economies
    • Net NPL accretion tapering off with progress in asset resolution and increase in provisioning levels
    Source: E&Y, RBI US$ bn Net NPAs of banks & FIs Gross NPAs as % of GDP
  • 24. A new orientation among banks…
    • Sell products
    • Product research: what will sell?
    • Product sales and profitability targets
    • Product specialist groups
    • Introduce new offerings every few years/months
    • “ Branch banking”
    • Focus - customer acquisition
    • Meet customers’ needs
    • Customer research: what does the customer want?
    • Customer segment sales and profitability targets
    • Customer owners
    • Customer specific new offerings every week/day
    • Customer convenience
    • Deepen relationships
    Traditional/ public sector New/ private sector
  • 25. Technology- the ICICI Bank experience Share of transactions in March 2000 Channel 2% Internet 3% ATMs 94% Branches Share of transactions in July 2003 10% 51% 28% Call centre 11% 1%
  • 26. Retail credit opportunity… % Source: SSKI, CLSA ..penetration currently low, with growth driven by strong fundamentals… 60 36 27 14
  • 27. Retail credit drivers Declining retail loan interest rates
    • Interest rates on residential mortgages have reduced by 7% over last 4 years
    Increasing availability
    • Entry of banks has led to increased competition and coverage
    • Increasing use of technology further enhancing reach and accessibility
    Changing demographic profile
    • Middle & high income households increased from 11.6 million in fiscal 1995 to 25.7 million in fiscal 2002
  • 28. Retail market size 7.3 9.4 12.9 16.5 CAGR of 31% Annual disbursement (US$ billion)
  • 29. Changing profile of corporate banking…
    • Change in corporate focus - improving efficiency
      • Better asset utilisation and financial management
      • Limited new capacity creation
    • Increasing disintermediation in top tier segment
    • However, several opportunities for banks
      • Technology-driven fee-based services
      • Treasury and risk management products
      • Facilitating resource raising by corporates through syndication, securitisation and market-making
      • New approach to SME lending
        • Sophisticated banking services
        • Scientific portfolio construction and management
  • 30. Financial services potential: insurance Source: Swiss Re, Economic Research & Consulting (June 2002) 14.2% 12.1% 9.0% 5.2% 2.9% 2.7% 2.2% Premium as a % of GDP … the opening up of the sector provides a major opportunity for financial services players
  • 31. The “international Indian” opportunity Canada (0.42 mn) US (1.2 mn) West Indies UK (0.72 mn) GCC (4.1 mn) Nepal Singapore/ Malaysia (0.14 mn NRIs) Fiji Zimbabwe/ Uganda South Africa Area of large NRI population Areas of large PIO population Number of NRIs () Australia and New Zealand (< 0.1 mn) … the Indian diaspora, the emergence of Indian multinationals and resultant economic flows have created a new opportunity
  • 32. Agenda Economic backdrop Banking sector - overview & opportunities In summary
  • 33. In summary
    • The reform and liberalisation process has transformed the Indian economy
      • Structural shift with service sector growth
        • Immense potential to leverage technology and knowledge capital
      • Improved competitiveness in manufacturing after intermediate period of restructuring & rationalisation
      • Growing international linkages
        • Exports, manufacturing and distribution overseas
        • India as a manufacturing base
      • Globally benchmarked businesses, capable of competing internationally
  • 34. In summary (contd).
    • The banking sector has achieved significant success in addressing legacy concerns
      • Resolution of asset quality concerns through recovery, restructuring and provisioning
      • Focus on technology and customer orientation
    • The economic transformation provides major opportunities for the banking sector
      • Retail finance – credit and banking services
      • Corporate finance - banking services and structured finance
    • The sector is poised to capitalise on these opportunities
  • 35. Thank you

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