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India : Banking Sector Report_August 2013

The Indian banking sector has experienced robust growth over the past decade. Total banking sector assets have grown from USD1.3 trillion in FY10 to USD1.5 trillion in FY12, with public sector banks accounting for 73% of assets. Lending and deposits have increased significantly at CAGRs of 22.8% and 21.2% respectively between FY06-13. The number of ATMs in India has doubled between 2012-2014, improving access. Rural banking penetration has also increased over threefold between FY10-13. Overall, the Indian banking sector has shown strong growth in assets, lending, deposits and penetration, backed by rising incomes and policy support.

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Robust asset growth • Total Indian banking sector assets has reached USD1.5 trillion in FY12 from USD1.3 trillion in FY10, with 73 per cent of it being accounted by the public sector Growing lending and deposit • Total lending and deposits have increased at CAGR of 22.8 per cent and 21.2 per cent, respectively, during FY06-13 and are further poised for growth, backed by demand for housing and personal finance Higher ATM penetration • Total number of ATMs in India have increased to 1,04,500 in 2012 and is further expected double over the next two years, thereby taking the number of ATMs per million population from 85, at present, to about 170 Rising rural penetration • With the help of Financial Inclusion Plan (FY10-13), the banking connectivity in India increased more than threefold to 211,234 villages in 2013 from 67,694, at the beginning of the plan period Source: Planning Commission, Aranca Research ATM - Automated Teller Machine
• The engineering sector is delicensed; 100 per cent FDI is allowed in the sector • Due to policy support, there was cumulative FDI of USD14.0 billion into the sector over April 2000 – February 2012, making up 8.6 per cent of total FDI into the country in that period Growing demand Source: IBA report titled “Being five-star in productivity - Roadmap for excellence in Indian banking”; Aranca Research; Notes: NPA – Non Performing Assets Robust demand • Increase in working population and growing disposable incomes will raise demand for banking and related services • Housing and personal finance are expected to remain key demand drivers • Rural banking is expected to witness growth in the future Innovation in services • Mobile, Internet banking and extension of facilities at ATM stations to improve operational efficiency • Vast un-banked population highlights scope for innovation in delivery Policy support • Wide policy support in the form of private sector participation and liquidity infusion • Healthy regulatory oversight and credible Monetary Policy by the Reserve Bank of India (RBI) have lent strength and stability to the country’s banking sector Business fundamentals • Rising fee incomes improving the revenue mix of banks • High net interest margins, along with low NPA levels, ensure healthy business fundamentals FY12 Total asset size: USD1.5 trillion FY25E Total asset size: USD28.5 trillion Advantage India
Source: Indian Bank’s Association, Aranca Research, BMI Notes: RBI - Reserve Bank of India, FDI – Foreign Direct Investment Note: The data on number of banks belongs to FY11 • Closed market • State-owned Imperial Bank of India was the only bank existing • RBI was established as the central bank of country • Quasi central banking role of Imperial Bank came to an end • Imperial Bank expanded its network to 480 branches • In order to increase penetration in rural areas, Imperial Bank was converted into State Bank of India • Nationalisation of 14 large commercial banks in 1969 and 6 more banks in 1980 • Entry of private players such as ICICI intensifying the competition • Gradual technology upgradation in PSU banks 1921 1935 1936 -1955 1956-2000 2000 onwards • Number of banks increased to 27 public sector banks, 22 private sector banks and 41 foreign banks • Advent of mobile and internet banking • Growing FDI in the Indian banking sector
Reserve Bank of India Banks Financial Institutions Scheduled Commercial Banks (SCBs) Cooperative credit institutions Public sector banks (27) Private sector banks (22) Foreign banks (41) Regional Rural Banks (RRB) (62) Urban cooperative banks (1,674) Rural cooperative credit institutions (96,751) All-India financial institutions State-level institutions Other institutions Source: RBI - Reserve Bank of India, Aranca Research Note: The data on number of banks belongs to FY12
Growth in credit off-take over past few years (USD billion) Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate. Note: FY14* - RBI’s growth estimates ** Growth and CAGR is in terms of Indian rupee Credit off-take has been surging ahead over the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit During FY06–13, credit off-take expanded at a CAGR** of 22.8 per cent to USD991 billion Total credit off-take is estimated to grow to USD1,140 billion in FY14 Demand has grown for both corporate and retail loans 352 495 610 552 742 896 916 991 1,140 0% 5% 10% 15% 20% 25% 30% 0 200 400 600 800 1,000 1,200 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14* Amount (USD billion) Growth- RHS (%)
Growth in deposits over the past few years (USD billion) Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate Note: FY14*- RBI’s growth estimates ** Growth and CAGR is in terms of Indian rupee Deposits have grown at a CAGR** of 21.2 per cent during FY06–13; in FY13 total deposits stood at USD1,274.3 billion Total deposits are estimated to grow to USD1,452.7 billion in FY14 Deposit growth has been mainly driven by strong growth in savings amid rising disposable income levels Access to the banking system has also improved over the years due to persistent government efforts; at the same time India’s banking sector has remained stable despite global upheavals, thereby retaining public confidence over the years 489 665 822 763 1,030 1,182 1,170 1,274 1,453 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14*
Total Banking sector assets (USD billion) Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate *Growth and CAGR is in terms of Indian rupee Total banking sector assets have increased at a CAGR* of 8.2 per cent to USD1.5 trillion during FY10–12 FY10–12 saw growth in assets of banks across sectors Assets of public sector banks, which account for 73 per cent of the total banking asset, grew at an average of 7.5 per cent Private sector expanded at an CAGR* of 11.3 per cent, while foreign banks posted a growth of 6.7 per cent 1,290 1,336 1,510 1,150 1,250 1,350 1,450 1,550 0 300 600 900 1,200 FY10 FY11 FY12 Foreign banks Private banks Public Banks Total Assets -RHS
Growth in money supply over past few years (USD billion) Source: Department of Industrial Policy and Promotion, Working group for 12th Five year plan, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term Narrow money (M1) is as defined by sum of currency with public and Deposit money of the public M2 is the sum of Narrow money and Post office saving deposit M3 refers to sum of M2 and Time deposit with banks Total money supply increased at a CAGR* of 13.9 per cent to USD1.5 trillion during FY06–13 Narrow money supply (M1) rose at a CAGR* of 12.5 per cent while its components currency with public and Deposit money of the public grew at a CAGR of 15.7 and 8.8 per cent during FY06–13 Board money supply (M2) increased at a CAGR* of 12.5 per cent to USD348.1 billion during FY06-13 Money supply (M3) grew at a CAGR* of 17.4 per cent to USD1.5 trillion during FY06-13 Time deposits with banks have shown highest average growth of 19.2 per cent to USD1.2 trillion during FY06–13 0 300 600 900 1,200 1,500 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Currency with the public Deposit Money of the Public Time Deposits with Banks Total Post Office Deposits 616 824 1,010 932 1,252 1,443 1,425 1,539
Interest income growth in Indian banking sector (USD billion) Source: Indian Bank’s Association, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term Public sector banks account for over 73 per cent of interest income in the sector They lead the pack in interest income growth with a CAGR* of 21.1 per cent over FY09-12 Overall, the interest income for the sector has grown at 19 per cent CAGR* during FY09-12 56.9 63.8 76.3 101.0 17.7 17.3 20.2 27.9 6.3 5.5 5.9 7.6 FY09 FY10 FY11 FY12 Public Banks Private Banks Foreign Banks
Net Interest Margins growth (FY12) Source: Indian Bank’s Association, Aranca Research Net Interest Margin (NIM) for scheduled commercial banks stood at 2.9 per cent in FY12, up from 2.6 per cent in FY08 Foreign banks, State Bank of India & its associates as well as private sector banks posted higher NIM at 4.0, 3.2 and 3.1 per cent, respectively in FY12 Net Interest Margin across sector (FY12) 3.2% 2.6% 2.8% 3.1% 4.0% 2.9% SBI & its associate Nationalised banks Public sector banks Private sector banks Foreign banks Scheduled commercial bank 2.58% 2.63% 2.54% 2.91% 2.90% FY08 FY09 FY10 FY11 FY12 Average
Healthy net interest margins (FY12) Source: Company Reports, Aranca Research Note: HDFC – Housing Development Finance Corporation, ICICI – Industrial Credit and Investment Corporation of India, SBI – State Bank of India Indian banking sector enjoys healthy net interest margins (NIM) compared with global peers HDFC leads the large banks with a NIM of over 4 per cent Prominent Chinese banks have NIM’s between 2-3 per cent, significantly lower than Indian peers Despite virtually zero cost funds, the banks in the US have NIM’s comparable to Indian peers 4.22% 2.73% 3.85% 3.59% HDFC ICICI SBI Axis
‘Other income’ growth in Indian banking sector (USD billion) Source: Indian Bank’s Association, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term Public sector banks account for about 59 per cent of income other than from interest (‘other income’) ‘Other income’ for public sector banks has risen at a CAGR* of 5.7 per cent during FY09-12 Overall, ‘other income’ for the sector has risen at 4.5 per cent CAGR* during FY09-12 8.9 10.2 10.0 10.5 3.7 4.3 4.3 5.1 3.1 2.1 2.3 2.3 FY09 FY10 FY11 FY12 Public Banks Private Banks Foreign Banks
Gross NPAs to Gross Advances (FY12) Source: Reserve Bank of India (RBI), Aranca Research Despite the global financial crisis, net non-performing assets (NPA) of Indian banking sector have declined over the past few years Although net NPA levels increased to 1.28 per cent in FY12 from 0.97 per cent in FY11, it is relatively stable Privates sector banks maintained lowest gross non-performing assets to gross advances at 2.08 per cent in FY12 NPA levels over the year 3.17% 2.08% 2.68% Public sector banks Private sector banks Foreign banks 1.02% 1.00% 1.05% 1.12% 0.97% 1.28% FY07 FY08 FY09 FY10 FY11 FY12
Return on assets Source: Reserve Bank of India (RBI), Aranca Research Loan-to-Deposit ratio for banks across sectors has increased over the years Private and foreign banks have posted high return on assets than nationalised and public banks Loan-to-Deposit ratio 91% 100% 97% 128% 126% 79% 103% 96% 143% 175% 89% 88% 88% 153% 176% SBI & its associate Nationalised banks Public banks Private banks Foreign banks FY10 FY11 FY12 77% 71% 73% 77% 70% 80% 74% 76% 80% 81% 82% 76% 78% 82% 83% SBI & its associate Nationalised banks Public banks Private banks Foreign banks FY10 FY11 FY12
Market share of bank groups by deposits Source: IBA statistics, Aranca Research Share of public sector banks in total deposits have also declined from 78.2 per cent in FY05 to 77.5 per cent in FY12 This is largely due to the fact that private banks are rapidly capturing share in savings deposit 78.2% 77.5% 17.1% 18.2% 4.7% 4.3% FY05 FY12 Public banks Private banks Foreign banks
Improved risk management practices • Indian banks are increasingly focusing on adopting integrated approach to risk management • Banks have already embraced the international banking supervision accord of Basel II; interestingly, according to RBI, majority of the banks already meet capital requirements of Basel III • Most of the banks have put in place the framework for asset-liability match, credit and derivatives risk management Diversification of revenue stream • Banks are laying emphasis on diversifying the source of revenue stream to protect themselves from interest rate cycle and its impact on interest income • Focusing on increasing fee and fund based income by launching plethora of new asset management, wealth management and treasury products Technological innovations • Indian banks, including public sector banks are aggressively improving their technology infrastructure to enhance customer experience and gain competitive advantage • Internet and mobile banking is gaining rapid foothold • Customer Relationship Management (CRM) and data warehousing will drive the next wave of technology in banks Source: Indian Bank's Association, Indian Banking sector 2020, Aranca Research
Focus on financial inclusion • RBI has emphasised the need to focus on spreading the reach of banking services to the un-banked population of India • Indian banks are expanding their branch network in the rural areas to capture the new business opportunity Derivatives and risk management products • The increasingly dynamic business scenario and financial sophistication has increased the need for customised exotic financial products • Banks are developing Innovative financial products and advanced risk management methods to capture the market share Consolidation • With entry of foreign banks competition in the Indian banking sector has intensified • Banks are increasingly looking at consolidation to derive greater benefits such as enhanced synergy, cost take-outs from economies of scale, organisational efficiency, and diversification of risks Source: Indian Bank's Association, Indian Banking Sector 2020, Aranca Research
Increasing focus on Woman Banking • Total lending by public sector banks to self-employed women touched USD43 billion in FY12 from USD31 billion in FY10 • In July 2012, RBI extended lending to individual women up to USD965 under the weaker section Wide usability of RTGS and NEFT • Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are being implemented by Indian banks for fund transaction • Securities Exchange Board of India (SEBI) has included NEFT and RTGS payment system to the existing list of methods that a company can use for payment of dividend or other cash benefits to their shareholders and investors Know Your Client • RBI mandated the Know Your Customer (KYC) Standards, wherein all banks are required to put in place a comprehensive policy framework in order to avoid money laundering activities • The KYC policy is now mandatory for opening an account or any making any investment such as mutual funds Source: Indian Bank's Association, Indian Banking Sector 2020, Business India Aranca Research
Source: PWC, ‘Searching for new frontiers of growth’, Aranca Research • In the last few years, technology is being increasingly used by Indian banks • Banks are using technology at various levels such as, back-office processing, convergence of delivery channels, IT-enabled business process reengineering as well as communication with customers • Indian banks currently devote around 15 per cent of total spending on technology • Spending on technology is expected to increase at an annual rate of 14.2 per cent • Banks in the country are set to benefit further as they move ahead in implementing additional technological advancements • Technology has allowed banks to increase their scale rapidly and manage increased business and transactions volume with lesser man power and reduced costs (at the operational level) • Digital analytics is providing deeper insights into customer needs and enabling banks to offer highly targeted products and services; this is likely to pick up pace in the coming years • New channel-integration technologies are enabling a more seamless end-to-end experience for banking customers • Offering new opportunities to engage and interact with customers and thereby build relationship and grow revenues; social media has a crucial role to play in this Increasing usage of technology
Growth in ATMs Source: IBA statistics, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term The wide scope and ease of online banking has led to a paradigm shift from traditional branch banking to net banking The total number of people using net banking has increased to 7 per cent in 2012 Extensions for facilities such as fund transfer, account maintenance and bill payment at ATM stations have reduced branch banking footfall ATMs in India have increased to 1,04,500 in 2012 and are further expected to double over the next two years The increase would take the number of ATMs per million population from the current 85 to about 170 16,750 21,509 27,088 34,789 43,651 60,153 74,743 104,500 2005 2006 2007 2008 2009 2010 2011 2012* CAGR: 29.9%
• Deposit of cash • Withdrawal of cash • Mini-statement • Balance Inquiry • Coupon Dispensing • Fulfilling request from customers • Account transfer • Touch screen menus • Bill payment • Mobile recharging 1988-1994 1995-1999 2001-2004 2004-2006 2007 onwards • Check deposit with scanning • Customised ATMs Source: IBA statistics, Aranca Research
Notes: GDP - Gross Domestic Product, KYC - Know Your Customer, RBI - Reserve Bank of India, ATM - Automated Teller Machine Economic and demographic drivers Policy support Infrastructure financing Technological innovation • Favourable demographics and rising income levels • Strong GDP growth (CAGR of 7.0 per cent expected over 2012–17) to facilitate banking sector expansion • The sector will benefit from structural economic stability and continued credibility of Monetary Policy • Extension of interest subsidy to low cost home buyers • Simplification of KYC norms, introduction of no- frills accounts and Kisan Credit Cards to increase rural banking penetration • RBI is considering giving more licenses to private sector players to increase banking penetration • India currently spends 6 per cent of GDP on infrastructure; Planning Commission expects this fraction to grow going ahead • Banking sector is expected to finance part of the USD1 trillion infrastructure investments in the 12th Five Year Plan, opening a huge opportunity for the sector • Technological innovation will not only help to improve products and services but also to reach out to the masses in cost effective way • Use of alternate channels like ATM, internet and mobile hold significant potential in India
64.9 53.9 66.9 76.4 74.8 81.0 FY08 FY09 FY10 FY11 FY12 FY13** Growth in credit to housing finances (USD billion) Source: Reserve Bank of India (RBI), Aranca Research Note: * CAGR - Compound Annual Growth Rate, CAGR* - is calculated in INR terms FY13**: Data till February 2013 Rapid urbanisation, decreasing household size and easier availability of home loans has been driving demand for housing Credit to housing sector increased at a CAGR* of 11.1 per cent during FY08–13 As of February 2013, credit to housing sector was at USD81.0 billion compared to USD76.0 billion a year ago Demand in the low- and mid-income segments exceeds supply three- to four-fold This has propelled demand for housing loan in the last few years CAGR: 11.1%
65.2 54.7 63.3 74.9 73.3 79.0 FY08 FY09 FY10 FY11 FY12 FY13** Growth in personal finance (excluding housing) Source: Reserve Bank of India (RBI), Aranca Research Note: *CAGR - Compound Annual Growth Rate, CAGR* - is calculated in INR terms FY13**: Data till February 2013 Growth in disposable income has been encouraging households to raise their standard of living and boost demand for personal credit Credit under the personal finance segment (excluding housing) rose at a CAGR of 10.8 per cent during FY08–13 Unlike some other emerging markets, credit-induced consumption is still less in India CAGR*: 10.8%
India’s working age population and GDP per capita (USD) Source: World Bank, IMF, Aranca Research Note: E - Expected, F - Forecasted, GDP - Gross Domestic Product Rising per capita income will lead to increase in the fraction of the Indian population that uses banking services Population in 25-60 age group is expected to grow strongly going ahead, giving further push to the number of customers in banking sector 0 500 1,000 1,500 2,000 2,500 0 100 200 300 400 500 600 700 2001 2006 2011E 2016F Population (Million) GDP per capita - RHS (USD)
Total loans: growth forecast over 2011-17 (USD billion) Source: Reserve Bank of India, Business Monitor International Ltd (BMI), Aranca Research Note: *CAGR - Compound Annual Growth Rate CAGR* - is calculated in INR terms India’s GDP is forecasted to expand at a healthy CAGR* of 7.0 per cent during 2012-17 to USD2,735.7 billion Strong GDP growth will facilitate banking sector expansion Total banking sector credit is expected to increase at a CAGR* of 18.1 per cent to USD2.4 trillion by 2017 The sector will also benefit from economic stability and credibility of Monetary Policy 896 2,435 75 432 326 315 371 2011 2012 2013 2014F 2015F 2016F 2017F
Loan/GDP vs. GDP per-capita in select countries Source: World Bank Financial Access report 2010, IMF, Aranca Research Despite healthy growth over the past few years, the Indian banking sector is relatively underpenetrated Loans-to-GDP ratio is low (62 per cent) relative to many of its emerging markets peers as well as developed economies such as the US and UK Estonia Bulgaria Hungary Czech Republic PolandTurkey Vietnam India China Germany UK US 0% 50% 100% 150% 200% 250% 300% 350% 0 10,000 20,000 30,000 40,000 50,000 60,000 Total loans / GDP Per-capita GDP (USD) Size of the bubble represents GDP per capita
747 839 1,065 1,626 1,661 2,063 2,022 2,182 2,403 2,923 3,969 India South Africa Brazil Poland Turkey Malaysia US Ireland Austria UK Belgium Banking penetration (deposits/ '000 adults) in India is lower than a number of peers in Emerging countries Advanced economies Deposit accounts per 1,000 adults Source: World Bank Financial Access Report 2010, IMF, Aranca Research Limited banking penetration in India is also evident from low branch per 100,000 adults ratio Branch per 100,000 adults in India stands at 747 compared to 1,065 for Brazil and 2,063 for Malaysia Bank deposit accounts per 1000 adults in India stands at 953.1 compared to 1,032.7 in Brazil and 1,642.2 in Malaysia
HDFC Bank • Established in 1994, HDFC Bank is the second largest private sector bank in India. HDFC was amongst the first to receive an 'in principle' approval from the RBI to set up a bank in the private sector • Divisions – Retail banking, Wholesale banking and Treasury operations • Size – Number of branches and extensions: 3,062* • Number of ATMs: 10,743* • Number of employees: 66,076 as on March 31, 2012 • Total assets: USD73.5 billion* • Recognition – • Best Retail Bank in India (Asian Banker:2012) • Best Performing Bank – Private (CNBC TV18:2011) Net profit USD (millions) Source: Company Annual Reports, Aranca Research Note: * - As on March 2013 Note: * CAGR - Compound Annual Growth Rate, CAGR*: is calculated in INR terms FY13**: Data till February 2013 237.8 331.3 467.7 614.3 818.0 1,076.5 1,235.8 FY07 FY08 FY09 FY10 FY11 FY12 FY13 CAGR: 31.6%
Income break-up (FY13) Advances and deposits (USD billion) Source: Company Annual Reports, Aranca Research 10 13 21 26 33 41 44 14 21 30 35 43 51 54 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Advances Deposits 70% 30% Net Interest Income Other Income
147.6 264.1 452.7 485.4 753.0 936.4 998.0 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Axis Bank • Established in 1994, Axis Bank is the third largest private sector bank in India. The bank is capitalised to the extent of USD86.0 million with the public holding at 54.1 per cent as on 31st March, 2012 • Divisions – Treasury, retail banking, corporate/wholesale banking and other banking business • Size – Number of branches and extensions: 1,947* • Number of ATMs: 11,245* • Number of employees : 31,738 as on March 31,2012 • Total assets: USD63 billion* • Recognition – • Most Productive Private Sector Bank award (FIBAC:2011) • 3rd strongest bank in Asia Pacific region (Asian Banker: 2011) Net profit USD (Millions) Source: Company Annual Reports, Aranca Research Note: FIBAC - FICCI and Indian Banks’ Association Conference * - As on December 2012 CAGR: 37.5%
Income break-up (FY13) Advances and deposits (USD billion) Source: Company Annual Reports, Aranca Research 60% 34% 6% Net Interest income Fee Income Other Income 8 12 17 22 30 35 46 12 18 24 29 39 46 36 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Advances Deposits
1.6 2.2 2.4 2.5 2.3 3.2 2.0 FY07 FY08 FY09 FY10 FY11 FY12 9M '13 State Bank of India • Established in 1955, State Bank of India is the largest public sector bank in India. The bank is capitalised to the extent of USD129.3 million with the government holding of 62.31 per cent as on May 2013 • Divisions – Treasury, retail banking, corporate/wholesale banking and other banking businesses • Size – Number of branches and extensions : 15,003** • Number of ATMs : 61,500* • Total Assets: USD257.3 billion* • Recognition – • SBI ranked 29th amongst the most reputed company in the world in 2009 rankings Net profit (USD billions) Source: Company Annual Reports, moneycontrol.com, Forbes, Aranca Research Note: *CAGR - Compound Annual Growth Rate, CAGR* - is calculated in INR terms ** - As on December 2012 CAGR: 15.1%
Income break-up (9M ‘13) Advances and deposits (USD billion) Source: Company Annual Reports, Aranca Research 89% 11% Net Interest Income Other Income 112 151 148 192 224 231 160 142 188 195 242 276 273 184 FY07 FY08 FY09 FY10 FY11 FY12 9M'13 Advances Deposits
Source: Company Annual Reports, Aranca Research The RBI has aimed to provide banking services through a banking branch in every village having a population of more than 2000 Financial inclusion has permitted banks to utilise the services of non-governmental organisations (NGOs), micro-finance institutions (other than Non-Banking Financial Companies) and other civil society organisations as intermediaries in providing financial and banking services to all sections of the society, mainly the weaker sections and lower income groups The Financial Inclusion Plan (2010–13) has increased the penetration of banking services in rural areas Banking connectivity Business Correspondents Basic Savings Bank Deposit Accounts (BSBDA) Kissan Credit Cards and General Credit Cards outstanding • Increased more than threefold from 67,694 villages, at the beginning of the plan period, to 211,234 by December 2012 • Numbers of Business Correspondents have increased from 34,532 in March 2010 to 152,328 in December 2012 • Total number of BSBDA have gone up from 73.45 million in 2010 to 171.43 million by 2012 • Kissan Credit Cards outstanding have gone up from 24.3 million in 2010 to 31.7 million by 2012, while General Credit Cards outstanding have gone up from 1.4 million to 3.1 million during the same period
GDP of agriculture, forestry & fishing sector, at current prices (USD Billion) Source: McKinsey estimates, Aranca Research Notes: CAGR – Compounded Annual Growth Rate, QE – Quick Estimate, RE – Revised Estimate The real annual disposable household income in rural India is forecasted to grow at CAGR of 3.6 per cent over the next 15 years The Indian agriculture, forestry & fishing sector has grown at a fast pace, clocking a CAGR of 14.2 per cent over the past seven years Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector Real disposable household income in rural India (USD) 133 151 174 194 225 265 295 FY06 FY07 FY08 FY09 FY10 FY11 QE FY12 RE 1,875 2,167 2,667 3,229 2010 2015 2020 2025 CAGR: 14.2% CAGR: 3.6%
Banking penetration in rural India picking pace • Of the 600,000 village habitations in India only 5 per cent have a commercial bank branch • Only 40 per cent of the adult population has bank accounts • Debit card holders constitute only 13 per cent of the population and only 2 per cent have a credit card • 51.4 per cent of nearly 89.3 million farm households do not have access to any credit either from institutional or non-institutional sources • Only 13 per cent of farm households are availing loans from the banks in the income bracket of < USD1000 Soaring rural teledensity opens avenue of mobile banking Source: TRAI, Aranca Research Note: * Indicates as on February 2013 Agriculture requires timely credit to enable smooth functioning. However, only one-eighth of farm households avail bank credit Local money-lending practices involve interest rates well above 30 per cent, therefore making bank credit a compelling alternative Tele-density in rural India soared to nearly 40.8 per cent in February 2013 from less than 1 per cent in 2007 Banks, telecom providers and RBI are making efforts to make inroads into the un-banked rural India through mobile banking solutions 0.4 9.2 15.2 24.3 37.5 39.9 40.8 2007 2008 2009 2010 2011 2012 2013* Rural Teledensity
Evolution of mobile banking • Mobile banking allows customers to avail banking services on the move through their mobile phones. The growth of mobile banking could impact the banking sector significantly • Mobile banking across the world is still at a primitive stage with countries like China, India and UAE taking the lead • Mobile banking is especially critical for countries like India, as it promises to provide an opportunity to provide banking facilities to a previously under-banked market • RBI has taken several steps to enable mobile payments, which forms an important part of mobile banking; the central bank has recently removed the transaction limit of INR50,000 and allowed banks to set their own limits • Mobile banking transactions in India will cross 340 million by 2015 and would result in cost savings of approximately INR11 billion (USD230 million) Source: PWC, ‘Searching for new frontiers of growth’, Aranca Research Mobile commerce Payment of bills Mobile banking (fund transfers, etc.) Mobile recharge Mobile remittances
Indian Banks' Association World Trade Centre, 6th Floor Centre 1 Building, World Trade Centre Complex, Cuff Parade, Mumbai - 400 005 India E-mail: webmaster@iba.org.in
ATM: Automated Teller Machines CAGR: Compound Annual Growth Rate FY: Indian financial year (April to March) GDP: Gross Domestic Product INR: Indian rupee KYC: Know Your Customer NIM: Net interest margin NPA: Non-performing assets RBI: Reserve Bank of India USD: US Dollar Wherever applicable, numbers have been rounded off to the nearest whole number
Year INR equivalent of one USD 2004-05 44.95 2005-06 44.28 2006-07 45.28 2007-08 40.24 2008-09 45.91 2009-10 47.41 2010-11 45.57 2011-12 47.94 2012-13 54.31 Exchange Rates (Fiscal Year) Year INR equivalent of one USD 2005 45.55 2006 44.34 2007 39.45 2008 49.21 2009 46.76 2010 45.32 2011 45.64 2012 54.69 2013 54.45 Exchange Rates (Calendar Year) Average for the year
India Brand Equity Foundation (“IBEF”) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Aranca and IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.

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India : Banking Sector Report_August 2013

  • 2.
  • 3.
    Robust asset growth •Total Indian banking sector assets has reached USD1.5 trillion in FY12 from USD1.3 trillion in FY10, with 73 per cent of it being accounted by the public sector Growing lending and deposit • Total lending and deposits have increased at CAGR of 22.8 per cent and 21.2 per cent, respectively, during FY06-13 and are further poised for growth, backed by demand for housing and personal finance Higher ATM penetration • Total number of ATMs in India have increased to 1,04,500 in 2012 and is further expected double over the next two years, thereby taking the number of ATMs per million population from 85, at present, to about 170 Rising rural penetration • With the help of Financial Inclusion Plan (FY10-13), the banking connectivity in India increased more than threefold to 211,234 villages in 2013 from 67,694, at the beginning of the plan period Source: Planning Commission, Aranca Research ATM - Automated Teller Machine
  • 4.
    • The engineeringsector is delicensed; 100 per cent FDI is allowed in the sector • Due to policy support, there was cumulative FDI of USD14.0 billion into the sector over April 2000 – February 2012, making up 8.6 per cent of total FDI into the country in that period Growing demand Source: IBA report titled “Being five-star in productivity - Roadmap for excellence in Indian banking”; Aranca Research; Notes: NPA – Non Performing Assets Robust demand • Increase in working population and growing disposable incomes will raise demand for banking and related services • Housing and personal finance are expected to remain key demand drivers • Rural banking is expected to witness growth in the future Innovation in services • Mobile, Internet banking and extension of facilities at ATM stations to improve operational efficiency • Vast un-banked population highlights scope for innovation in delivery Policy support • Wide policy support in the form of private sector participation and liquidity infusion • Healthy regulatory oversight and credible Monetary Policy by the Reserve Bank of India (RBI) have lent strength and stability to the country’s banking sector Business fundamentals • Rising fee incomes improving the revenue mix of banks • High net interest margins, along with low NPA levels, ensure healthy business fundamentals FY12 Total asset size: USD1.5 trillion FY25E Total asset size: USD28.5 trillion Advantage India
  • 5.
    Source: Indian Bank’sAssociation, Aranca Research, BMI Notes: RBI - Reserve Bank of India, FDI – Foreign Direct Investment Note: The data on number of banks belongs to FY11 • Closed market • State-owned Imperial Bank of India was the only bank existing • RBI was established as the central bank of country • Quasi central banking role of Imperial Bank came to an end • Imperial Bank expanded its network to 480 branches • In order to increase penetration in rural areas, Imperial Bank was converted into State Bank of India • Nationalisation of 14 large commercial banks in 1969 and 6 more banks in 1980 • Entry of private players such as ICICI intensifying the competition • Gradual technology upgradation in PSU banks 1921 1935 1936 -1955 1956-2000 2000 onwards • Number of banks increased to 27 public sector banks, 22 private sector banks and 41 foreign banks • Advent of mobile and internet banking • Growing FDI in the Indian banking sector
  • 6.
    Reserve Bank ofIndia Banks Financial Institutions Scheduled Commercial Banks (SCBs) Cooperative credit institutions Public sector banks (27) Private sector banks (22) Foreign banks (41) Regional Rural Banks (RRB) (62) Urban cooperative banks (1,674) Rural cooperative credit institutions (96,751) All-India financial institutions State-level institutions Other institutions Source: RBI - Reserve Bank of India, Aranca Research Note: The data on number of banks belongs to FY12
  • 7.
    Growth in creditoff-take over past few years (USD billion) Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate. Note: FY14* - RBI’s growth estimates ** Growth and CAGR is in terms of Indian rupee Credit off-take has been surging ahead over the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit During FY06–13, credit off-take expanded at a CAGR** of 22.8 per cent to USD991 billion Total credit off-take is estimated to grow to USD1,140 billion in FY14 Demand has grown for both corporate and retail loans 352 495 610 552 742 896 916 991 1,140 0% 5% 10% 15% 20% 25% 30% 0 200 400 600 800 1,000 1,200 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14* Amount (USD billion) Growth- RHS (%)
  • 8.
    Growth in depositsover the past few years (USD billion) Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate Note: FY14*- RBI’s growth estimates ** Growth and CAGR is in terms of Indian rupee Deposits have grown at a CAGR** of 21.2 per cent during FY06–13; in FY13 total deposits stood at USD1,274.3 billion Total deposits are estimated to grow to USD1,452.7 billion in FY14 Deposit growth has been mainly driven by strong growth in savings amid rising disposable income levels Access to the banking system has also improved over the years due to persistent government efforts; at the same time India’s banking sector has remained stable despite global upheavals, thereby retaining public confidence over the years 489 665 822 763 1,030 1,182 1,170 1,274 1,453 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14*
  • 9.
    Total Banking sectorassets (USD billion) Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate *Growth and CAGR is in terms of Indian rupee Total banking sector assets have increased at a CAGR* of 8.2 per cent to USD1.5 trillion during FY10–12 FY10–12 saw growth in assets of banks across sectors Assets of public sector banks, which account for 73 per cent of the total banking asset, grew at an average of 7.5 per cent Private sector expanded at an CAGR* of 11.3 per cent, while foreign banks posted a growth of 6.7 per cent 1,290 1,336 1,510 1,150 1,250 1,350 1,450 1,550 0 300 600 900 1,200 FY10 FY11 FY12 Foreign banks Private banks Public Banks Total Assets -RHS
  • 10.
    Growth in moneysupply over past few years (USD billion) Source: Department of Industrial Policy and Promotion, Working group for 12th Five year plan, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term Narrow money (M1) is as defined by sum of currency with public and Deposit money of the public M2 is the sum of Narrow money and Post office saving deposit M3 refers to sum of M2 and Time deposit with banks Total money supply increased at a CAGR* of 13.9 per cent to USD1.5 trillion during FY06–13 Narrow money supply (M1) rose at a CAGR* of 12.5 per cent while its components currency with public and Deposit money of the public grew at a CAGR of 15.7 and 8.8 per cent during FY06–13 Board money supply (M2) increased at a CAGR* of 12.5 per cent to USD348.1 billion during FY06-13 Money supply (M3) grew at a CAGR* of 17.4 per cent to USD1.5 trillion during FY06-13 Time deposits with banks have shown highest average growth of 19.2 per cent to USD1.2 trillion during FY06–13 0 300 600 900 1,200 1,500 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Currency with the public Deposit Money of the Public Time Deposits with Banks Total Post Office Deposits 616 824 1,010 932 1,252 1,443 1,425 1,539
  • 11.
    Interest income growthin Indian banking sector (USD billion) Source: Indian Bank’s Association, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term Public sector banks account for over 73 per cent of interest income in the sector They lead the pack in interest income growth with a CAGR* of 21.1 per cent over FY09-12 Overall, the interest income for the sector has grown at 19 per cent CAGR* during FY09-12 56.9 63.8 76.3 101.0 17.7 17.3 20.2 27.9 6.3 5.5 5.9 7.6 FY09 FY10 FY11 FY12 Public Banks Private Banks Foreign Banks
  • 12.
    Net Interest Marginsgrowth (FY12) Source: Indian Bank’s Association, Aranca Research Net Interest Margin (NIM) for scheduled commercial banks stood at 2.9 per cent in FY12, up from 2.6 per cent in FY08 Foreign banks, State Bank of India & its associates as well as private sector banks posted higher NIM at 4.0, 3.2 and 3.1 per cent, respectively in FY12 Net Interest Margin across sector (FY12) 3.2% 2.6% 2.8% 3.1% 4.0% 2.9% SBI & its associate Nationalised banks Public sector banks Private sector banks Foreign banks Scheduled commercial bank 2.58% 2.63% 2.54% 2.91% 2.90% FY08 FY09 FY10 FY11 FY12 Average
  • 13.
    Healthy net interestmargins (FY12) Source: Company Reports, Aranca Research Note: HDFC – Housing Development Finance Corporation, ICICI – Industrial Credit and Investment Corporation of India, SBI – State Bank of India Indian banking sector enjoys healthy net interest margins (NIM) compared with global peers HDFC leads the large banks with a NIM of over 4 per cent Prominent Chinese banks have NIM’s between 2-3 per cent, significantly lower than Indian peers Despite virtually zero cost funds, the banks in the US have NIM’s comparable to Indian peers 4.22% 2.73% 3.85% 3.59% HDFC ICICI SBI Axis
  • 14.
    ‘Other income’ growthin Indian banking sector (USD billion) Source: Indian Bank’s Association, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term Public sector banks account for about 59 per cent of income other than from interest (‘other income’) ‘Other income’ for public sector banks has risen at a CAGR* of 5.7 per cent during FY09-12 Overall, ‘other income’ for the sector has risen at 4.5 per cent CAGR* during FY09-12 8.9 10.2 10.0 10.5 3.7 4.3 4.3 5.1 3.1 2.1 2.3 2.3 FY09 FY10 FY11 FY12 Public Banks Private Banks Foreign Banks
  • 15.
    Gross NPAs toGross Advances (FY12) Source: Reserve Bank of India (RBI), Aranca Research Despite the global financial crisis, net non-performing assets (NPA) of Indian banking sector have declined over the past few years Although net NPA levels increased to 1.28 per cent in FY12 from 0.97 per cent in FY11, it is relatively stable Privates sector banks maintained lowest gross non-performing assets to gross advances at 2.08 per cent in FY12 NPA levels over the year 3.17% 2.08% 2.68% Public sector banks Private sector banks Foreign banks 1.02% 1.00% 1.05% 1.12% 0.97% 1.28% FY07 FY08 FY09 FY10 FY11 FY12
  • 16.
    Return on assets Source:Reserve Bank of India (RBI), Aranca Research Loan-to-Deposit ratio for banks across sectors has increased over the years Private and foreign banks have posted high return on assets than nationalised and public banks Loan-to-Deposit ratio 91% 100% 97% 128% 126% 79% 103% 96% 143% 175% 89% 88% 88% 153% 176% SBI & its associate Nationalised banks Public banks Private banks Foreign banks FY10 FY11 FY12 77% 71% 73% 77% 70% 80% 74% 76% 80% 81% 82% 76% 78% 82% 83% SBI & its associate Nationalised banks Public banks Private banks Foreign banks FY10 FY11 FY12
  • 17.
    Market share ofbank groups by deposits Source: IBA statistics, Aranca Research Share of public sector banks in total deposits have also declined from 78.2 per cent in FY05 to 77.5 per cent in FY12 This is largely due to the fact that private banks are rapidly capturing share in savings deposit 78.2% 77.5% 17.1% 18.2% 4.7% 4.3% FY05 FY12 Public banks Private banks Foreign banks
  • 18.
    Improved risk management practices •Indian banks are increasingly focusing on adopting integrated approach to risk management • Banks have already embraced the international banking supervision accord of Basel II; interestingly, according to RBI, majority of the banks already meet capital requirements of Basel III • Most of the banks have put in place the framework for asset-liability match, credit and derivatives risk management Diversification of revenue stream • Banks are laying emphasis on diversifying the source of revenue stream to protect themselves from interest rate cycle and its impact on interest income • Focusing on increasing fee and fund based income by launching plethora of new asset management, wealth management and treasury products Technological innovations • Indian banks, including public sector banks are aggressively improving their technology infrastructure to enhance customer experience and gain competitive advantage • Internet and mobile banking is gaining rapid foothold • Customer Relationship Management (CRM) and data warehousing will drive the next wave of technology in banks Source: Indian Bank's Association, Indian Banking sector 2020, Aranca Research
  • 19.
    Focus on financial inclusion •RBI has emphasised the need to focus on spreading the reach of banking services to the un-banked population of India • Indian banks are expanding their branch network in the rural areas to capture the new business opportunity Derivatives and risk management products • The increasingly dynamic business scenario and financial sophistication has increased the need for customised exotic financial products • Banks are developing Innovative financial products and advanced risk management methods to capture the market share Consolidation • With entry of foreign banks competition in the Indian banking sector has intensified • Banks are increasingly looking at consolidation to derive greater benefits such as enhanced synergy, cost take-outs from economies of scale, organisational efficiency, and diversification of risks Source: Indian Bank's Association, Indian Banking Sector 2020, Aranca Research
  • 20.
    Increasing focus on WomanBanking • Total lending by public sector banks to self-employed women touched USD43 billion in FY12 from USD31 billion in FY10 • In July 2012, RBI extended lending to individual women up to USD965 under the weaker section Wide usability of RTGS and NEFT • Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are being implemented by Indian banks for fund transaction • Securities Exchange Board of India (SEBI) has included NEFT and RTGS payment system to the existing list of methods that a company can use for payment of dividend or other cash benefits to their shareholders and investors Know Your Client • RBI mandated the Know Your Customer (KYC) Standards, wherein all banks are required to put in place a comprehensive policy framework in order to avoid money laundering activities • The KYC policy is now mandatory for opening an account or any making any investment such as mutual funds Source: Indian Bank's Association, Indian Banking Sector 2020, Business India Aranca Research
  • 21.
    Source: PWC, ‘Searchingfor new frontiers of growth’, Aranca Research • In the last few years, technology is being increasingly used by Indian banks • Banks are using technology at various levels such as, back-office processing, convergence of delivery channels, IT-enabled business process reengineering as well as communication with customers • Indian banks currently devote around 15 per cent of total spending on technology • Spending on technology is expected to increase at an annual rate of 14.2 per cent • Banks in the country are set to benefit further as they move ahead in implementing additional technological advancements • Technology has allowed banks to increase their scale rapidly and manage increased business and transactions volume with lesser man power and reduced costs (at the operational level) • Digital analytics is providing deeper insights into customer needs and enabling banks to offer highly targeted products and services; this is likely to pick up pace in the coming years • New channel-integration technologies are enabling a more seamless end-to-end experience for banking customers • Offering new opportunities to engage and interact with customers and thereby build relationship and grow revenues; social media has a crucial role to play in this Increasing usage of technology
  • 22.
    Growth in ATMs Source:IBA statistics, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term The wide scope and ease of online banking has led to a paradigm shift from traditional branch banking to net banking The total number of people using net banking has increased to 7 per cent in 2012 Extensions for facilities such as fund transfer, account maintenance and bill payment at ATM stations have reduced branch banking footfall ATMs in India have increased to 1,04,500 in 2012 and are further expected to double over the next two years The increase would take the number of ATMs per million population from the current 85 to about 170 16,750 21,509 27,088 34,789 43,651 60,153 74,743 104,500 2005 2006 2007 2008 2009 2010 2011 2012* CAGR: 29.9%
  • 23.
    • Deposit ofcash • Withdrawal of cash • Mini-statement • Balance Inquiry • Coupon Dispensing • Fulfilling request from customers • Account transfer • Touch screen menus • Bill payment • Mobile recharging 1988-1994 1995-1999 2001-2004 2004-2006 2007 onwards • Check deposit with scanning • Customised ATMs Source: IBA statistics, Aranca Research
  • 24.
    Notes: GDP -Gross Domestic Product, KYC - Know Your Customer, RBI - Reserve Bank of India, ATM - Automated Teller Machine Economic and demographic drivers Policy support Infrastructure financing Technological innovation • Favourable demographics and rising income levels • Strong GDP growth (CAGR of 7.0 per cent expected over 2012–17) to facilitate banking sector expansion • The sector will benefit from structural economic stability and continued credibility of Monetary Policy • Extension of interest subsidy to low cost home buyers • Simplification of KYC norms, introduction of no- frills accounts and Kisan Credit Cards to increase rural banking penetration • RBI is considering giving more licenses to private sector players to increase banking penetration • India currently spends 6 per cent of GDP on infrastructure; Planning Commission expects this fraction to grow going ahead • Banking sector is expected to finance part of the USD1 trillion infrastructure investments in the 12th Five Year Plan, opening a huge opportunity for the sector • Technological innovation will not only help to improve products and services but also to reach out to the masses in cost effective way • Use of alternate channels like ATM, internet and mobile hold significant potential in India
  • 25.
    64.9 53.9 66.9 76.4 74.8 81.0 FY08 FY09 FY10FY11 FY12 FY13** Growth in credit to housing finances (USD billion) Source: Reserve Bank of India (RBI), Aranca Research Note: * CAGR - Compound Annual Growth Rate, CAGR* - is calculated in INR terms FY13**: Data till February 2013 Rapid urbanisation, decreasing household size and easier availability of home loans has been driving demand for housing Credit to housing sector increased at a CAGR* of 11.1 per cent during FY08–13 As of February 2013, credit to housing sector was at USD81.0 billion compared to USD76.0 billion a year ago Demand in the low- and mid-income segments exceeds supply three- to four-fold This has propelled demand for housing loan in the last few years CAGR: 11.1%
  • 26.
    65.2 54.7 63.3 74.9 73.3 79.0 FY08 FY09FY10 FY11 FY12 FY13** Growth in personal finance (excluding housing) Source: Reserve Bank of India (RBI), Aranca Research Note: *CAGR - Compound Annual Growth Rate, CAGR* - is calculated in INR terms FY13**: Data till February 2013 Growth in disposable income has been encouraging households to raise their standard of living and boost demand for personal credit Credit under the personal finance segment (excluding housing) rose at a CAGR of 10.8 per cent during FY08–13 Unlike some other emerging markets, credit-induced consumption is still less in India CAGR*: 10.8%
  • 27.
    India’s working agepopulation and GDP per capita (USD) Source: World Bank, IMF, Aranca Research Note: E - Expected, F - Forecasted, GDP - Gross Domestic Product Rising per capita income will lead to increase in the fraction of the Indian population that uses banking services Population in 25-60 age group is expected to grow strongly going ahead, giving further push to the number of customers in banking sector 0 500 1,000 1,500 2,000 2,500 0 100 200 300 400 500 600 700 2001 2006 2011E 2016F Population (Million) GDP per capita - RHS (USD)
  • 28.
    Total loans: growthforecast over 2011-17 (USD billion) Source: Reserve Bank of India, Business Monitor International Ltd (BMI), Aranca Research Note: *CAGR - Compound Annual Growth Rate CAGR* - is calculated in INR terms India’s GDP is forecasted to expand at a healthy CAGR* of 7.0 per cent during 2012-17 to USD2,735.7 billion Strong GDP growth will facilitate banking sector expansion Total banking sector credit is expected to increase at a CAGR* of 18.1 per cent to USD2.4 trillion by 2017 The sector will also benefit from economic stability and credibility of Monetary Policy 896 2,435 75 432 326 315 371 2011 2012 2013 2014F 2015F 2016F 2017F
  • 29.
    Loan/GDP vs. GDPper-capita in select countries Source: World Bank Financial Access report 2010, IMF, Aranca Research Despite healthy growth over the past few years, the Indian banking sector is relatively underpenetrated Loans-to-GDP ratio is low (62 per cent) relative to many of its emerging markets peers as well as developed economies such as the US and UK Estonia Bulgaria Hungary Czech Republic PolandTurkey Vietnam India China Germany UK US 0% 50% 100% 150% 200% 250% 300% 350% 0 10,000 20,000 30,000 40,000 50,000 60,000 Total loans / GDP Per-capita GDP (USD) Size of the bubble represents GDP per capita
  • 30.
    747 839 1,065 1,626 1,661 2,0632,022 2,182 2,403 2,923 3,969 India South Africa Brazil Poland Turkey Malaysia US Ireland Austria UK Belgium Banking penetration (deposits/ '000 adults) in India is lower than a number of peers in Emerging countries Advanced economies Deposit accounts per 1,000 adults Source: World Bank Financial Access Report 2010, IMF, Aranca Research Limited banking penetration in India is also evident from low branch per 100,000 adults ratio Branch per 100,000 adults in India stands at 747 compared to 1,065 for Brazil and 2,063 for Malaysia Bank deposit accounts per 1000 adults in India stands at 953.1 compared to 1,032.7 in Brazil and 1,642.2 in Malaysia
  • 31.
    HDFC Bank • Establishedin 1994, HDFC Bank is the second largest private sector bank in India. HDFC was amongst the first to receive an 'in principle' approval from the RBI to set up a bank in the private sector • Divisions – Retail banking, Wholesale banking and Treasury operations • Size – Number of branches and extensions: 3,062* • Number of ATMs: 10,743* • Number of employees: 66,076 as on March 31, 2012 • Total assets: USD73.5 billion* • Recognition – • Best Retail Bank in India (Asian Banker:2012) • Best Performing Bank – Private (CNBC TV18:2011) Net profit USD (millions) Source: Company Annual Reports, Aranca Research Note: * - As on March 2013 Note: * CAGR - Compound Annual Growth Rate, CAGR*: is calculated in INR terms FY13**: Data till February 2013 237.8 331.3 467.7 614.3 818.0 1,076.5 1,235.8 FY07 FY08 FY09 FY10 FY11 FY12 FY13 CAGR: 31.6%
  • 32.
    Income break-up (FY13)Advances and deposits (USD billion) Source: Company Annual Reports, Aranca Research 10 13 21 26 33 41 44 14 21 30 35 43 51 54 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Advances Deposits 70% 30% Net Interest Income Other Income
  • 33.
    147.6 264.1 452.7 485.4 753.0 936.4 998.0 FY07 FY08FY09 FY10 FY11 FY12 FY13 Axis Bank • Established in 1994, Axis Bank is the third largest private sector bank in India. The bank is capitalised to the extent of USD86.0 million with the public holding at 54.1 per cent as on 31st March, 2012 • Divisions – Treasury, retail banking, corporate/wholesale banking and other banking business • Size – Number of branches and extensions: 1,947* • Number of ATMs: 11,245* • Number of employees : 31,738 as on March 31,2012 • Total assets: USD63 billion* • Recognition – • Most Productive Private Sector Bank award (FIBAC:2011) • 3rd strongest bank in Asia Pacific region (Asian Banker: 2011) Net profit USD (Millions) Source: Company Annual Reports, Aranca Research Note: FIBAC - FICCI and Indian Banks’ Association Conference * - As on December 2012 CAGR: 37.5%
  • 34.
    Income break-up (FY13)Advances and deposits (USD billion) Source: Company Annual Reports, Aranca Research 60% 34% 6% Net Interest income Fee Income Other Income 8 12 17 22 30 35 46 12 18 24 29 39 46 36 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Advances Deposits
  • 35.
    1.6 2.2 2.4 2.5 2.3 3.2 2.0 FY07FY08 FY09 FY10 FY11 FY12 9M '13 State Bank of India • Established in 1955, State Bank of India is the largest public sector bank in India. The bank is capitalised to the extent of USD129.3 million with the government holding of 62.31 per cent as on May 2013 • Divisions – Treasury, retail banking, corporate/wholesale banking and other banking businesses • Size – Number of branches and extensions : 15,003** • Number of ATMs : 61,500* • Total Assets: USD257.3 billion* • Recognition – • SBI ranked 29th amongst the most reputed company in the world in 2009 rankings Net profit (USD billions) Source: Company Annual Reports, moneycontrol.com, Forbes, Aranca Research Note: *CAGR - Compound Annual Growth Rate, CAGR* - is calculated in INR terms ** - As on December 2012 CAGR: 15.1%
  • 36.
    Income break-up (9M‘13) Advances and deposits (USD billion) Source: Company Annual Reports, Aranca Research 89% 11% Net Interest Income Other Income 112 151 148 192 224 231 160 142 188 195 242 276 273 184 FY07 FY08 FY09 FY10 FY11 FY12 9M'13 Advances Deposits
  • 37.
    Source: Company AnnualReports, Aranca Research The RBI has aimed to provide banking services through a banking branch in every village having a population of more than 2000 Financial inclusion has permitted banks to utilise the services of non-governmental organisations (NGOs), micro-finance institutions (other than Non-Banking Financial Companies) and other civil society organisations as intermediaries in providing financial and banking services to all sections of the society, mainly the weaker sections and lower income groups The Financial Inclusion Plan (2010–13) has increased the penetration of banking services in rural areas Banking connectivity Business Correspondents Basic Savings Bank Deposit Accounts (BSBDA) Kissan Credit Cards and General Credit Cards outstanding • Increased more than threefold from 67,694 villages, at the beginning of the plan period, to 211,234 by December 2012 • Numbers of Business Correspondents have increased from 34,532 in March 2010 to 152,328 in December 2012 • Total number of BSBDA have gone up from 73.45 million in 2010 to 171.43 million by 2012 • Kissan Credit Cards outstanding have gone up from 24.3 million in 2010 to 31.7 million by 2012, while General Credit Cards outstanding have gone up from 1.4 million to 3.1 million during the same period
  • 38.
    GDP of agriculture,forestry & fishing sector, at current prices (USD Billion) Source: McKinsey estimates, Aranca Research Notes: CAGR – Compounded Annual Growth Rate, QE – Quick Estimate, RE – Revised Estimate The real annual disposable household income in rural India is forecasted to grow at CAGR of 3.6 per cent over the next 15 years The Indian agriculture, forestry & fishing sector has grown at a fast pace, clocking a CAGR of 14.2 per cent over the past seven years Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector Real disposable household income in rural India (USD) 133 151 174 194 225 265 295 FY06 FY07 FY08 FY09 FY10 FY11 QE FY12 RE 1,875 2,167 2,667 3,229 2010 2015 2020 2025 CAGR: 14.2% CAGR: 3.6%
  • 39.
    Banking penetration inrural India picking pace • Of the 600,000 village habitations in India only 5 per cent have a commercial bank branch • Only 40 per cent of the adult population has bank accounts • Debit card holders constitute only 13 per cent of the population and only 2 per cent have a credit card • 51.4 per cent of nearly 89.3 million farm households do not have access to any credit either from institutional or non-institutional sources • Only 13 per cent of farm households are availing loans from the banks in the income bracket of < USD1000 Soaring rural teledensity opens avenue of mobile banking Source: TRAI, Aranca Research Note: * Indicates as on February 2013 Agriculture requires timely credit to enable smooth functioning. However, only one-eighth of farm households avail bank credit Local money-lending practices involve interest rates well above 30 per cent, therefore making bank credit a compelling alternative Tele-density in rural India soared to nearly 40.8 per cent in February 2013 from less than 1 per cent in 2007 Banks, telecom providers and RBI are making efforts to make inroads into the un-banked rural India through mobile banking solutions 0.4 9.2 15.2 24.3 37.5 39.9 40.8 2007 2008 2009 2010 2011 2012 2013* Rural Teledensity
  • 40.
    Evolution of mobilebanking • Mobile banking allows customers to avail banking services on the move through their mobile phones. The growth of mobile banking could impact the banking sector significantly • Mobile banking across the world is still at a primitive stage with countries like China, India and UAE taking the lead • Mobile banking is especially critical for countries like India, as it promises to provide an opportunity to provide banking facilities to a previously under-banked market • RBI has taken several steps to enable mobile payments, which forms an important part of mobile banking; the central bank has recently removed the transaction limit of INR50,000 and allowed banks to set their own limits • Mobile banking transactions in India will cross 340 million by 2015 and would result in cost savings of approximately INR11 billion (USD230 million) Source: PWC, ‘Searching for new frontiers of growth’, Aranca Research Mobile commerce Payment of bills Mobile banking (fund transfers, etc.) Mobile recharge Mobile remittances
  • 41.
    Indian Banks' Association WorldTrade Centre, 6th Floor Centre 1 Building, World Trade Centre Complex, Cuff Parade, Mumbai - 400 005 India E-mail: webmaster@iba.org.in
  • 42.
    ATM: Automated TellerMachines CAGR: Compound Annual Growth Rate FY: Indian financial year (April to March) GDP: Gross Domestic Product INR: Indian rupee KYC: Know Your Customer NIM: Net interest margin NPA: Non-performing assets RBI: Reserve Bank of India USD: US Dollar Wherever applicable, numbers have been rounded off to the nearest whole number
  • 43.
    Year INR equivalentof one USD 2004-05 44.95 2005-06 44.28 2006-07 45.28 2007-08 40.24 2008-09 45.91 2009-10 47.41 2010-11 45.57 2011-12 47.94 2012-13 54.31 Exchange Rates (Fiscal Year) Year INR equivalent of one USD 2005 45.55 2006 44.34 2007 39.45 2008 49.21 2009 46.76 2010 45.32 2011 45.64 2012 54.69 2013 54.45 Exchange Rates (Calendar Year) Average for the year
  • 44.
    India Brand EquityFoundation (“IBEF”) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Aranca and IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.