The document discusses opportunities in India's growing financial sector. It notes that India has one of the fastest growing economies in the world, with the services sector contributing over 60% to GDP. The banking sector is robust and growing rapidly, with significant untapped potential remaining in retail banking, insurance, and wealth management. Overall, the financial sector is well-positioned to support India's economic growth and meet the needs of an expanding middle class, though penetration of various financial products and services remains lower than in developed markets, indicating substantial room for further expansion.

1. US – India BusinessJanuary 27, 2015 1
Doing Business in India
The Big Picture
A Banker’s Perspective
US – India Business Summit
November 29, 2006
Dr. Anil K Khandelwal
Chairman & Managing Director
Bank of Baroda

2. US – India BusinessJanuary 27, 2015 2
Indian Economy – A Snapshot
 One of the fastest growing in the world
 Consumption growth fuelling economic growth – consumption
expenditure forming 78% of GDP
 Services sector contributing over 60% to GDP
 Emerging as a hub of manufacturing excellence. new growth
engines of Indian economy include IT, ITes, pharmaceuticals, bio-
technology, nano technology, agri. businesses
 Where forces of competition are at work
 Innovation driving enterprises
 Economic reforms well on course – entering second phase

3. US – India BusinessJanuary 27, 2015 3
 “Inclusive growth” occupying central place
 High untapped potential in rural / agri - economy
 Indian companies on acquiring spree and going global
 Indian companies pursuing global best practices and producing
world-class managers
Indian Economy – A Snapshot

4. US – India BusinessJanuary 27, 2015 4
Improved Ranking on Business Front
World Bank – IFC Report on Doing Business in India
for 2007 has given a higher rank to India compared
to last year because :
- India has cut the time to start a business from 71 to 25 days
- Reduced the Corporate Income Tax rate from 36.59% to 33.66%
- Supreme Court’s decision has made enforcing collateral simpler –
easing access to credit
- Reforms to Stock Exchange Regulations have toughened investor
protection

5. US – India BusinessJanuary 27, 2015 5
The Indian Financial Sector
 Robust financial system
 Well established institutions
 Strong supervisory system
 Progressive integration of financial markets - banking, insurance,
mutual funds, securities, commodities
 High competition marked by innovation
 High technology absorption
 Rediscovery of the Indian customer
 21st
century customer driving innovations in banking
 Banking plus financial services becoming the new offerings

6. US – India BusinessJanuary 27, 2015 6
The Indian Financial Sector
 Alternate e-delivery channels becoming popular with Indian
customers
 Financial sector bracing to meet life cycle and life style needs of
the great Indian middle class
 “Cradle to Grave” becoming the new spectrum of life cycle needs
 Banking graduating beyond traditional boundaries of vanilla
banking
 Indian customer demanding TOTAL FINANCIAL SOLUTIONS
 Banking sector bracing itself to offer customized and structured
products

7. US – India BusinessJanuary 27, 2015 7
The Indian Financial Sector
 Banking sector entering newer areas like wealth management, private
banking, doorstep banking, electronic banking, credit cards, investment
advisory services, etc.
 Indian banks in a war game to acquire and retain customers
 Indian middle class being reached out and wooed by banks
 Indian middle class and financial sector beginning to dream together and
weave a new bond of relationship
 Financial products like mutual funds, life policies, non-life policies competing
with traditional banking products
 Banking sector fully geared for helping Indian middle class realize its dream
 Banking sector in good health – with low non-performing assets and
prudential accounting standards in place
 Indian banking entering the phase of consolidation (2nd
Phase of Reform) – on
way to acquire global size

8. US – India BusinessJanuary 27, 2015 8
Robust & Resilient Banking Sector
 A free & open banking sector where most businesses are now covered at the
market-determined rates
 Full banking license system
 Highly Stable Sector despite a series of Exogenous Shocks like the Asian
Crisis, Sanctions due to Nuclear Explosions, Record High Oil Prices and
Large Corrections in Stock Markets
 Significant improvement in the Asset Quality: Net NPAs (%) have decreased
from 8.1% at end-March 1997 to 2.0% at end-March 2006 despite tightening of
prudential norms
 Capital Adequacy Ratio (%) of the banking sector has increased from 10.4% at
end-March 1997 to 12.8% at end-March 2006
 Operating Expenses of SCBs have declined from 2.1% of Total Assets in 1992
to 1.8% in 2005 indicative of improved efficiency
 Intermediation costs of SCBs have declined from 2.9% in 1995-96 to 2.1% in
2005-06

9. US – India BusinessJanuary 27, 2015 9
 Strong Regulatory & Supervisory system
 RBI has strengthened prudential norms with respect to income recognition,
disclosures and capital adequacy
 India complies with BIS 26 norms of best practices of supervisory criteria,
country risk & convertibility
 Indian banks are well on road towards BASEL II compliance
 Credit Deposit Ratio is increasing – PSB : 66.2%, Pvt. Banks : 76.3%
 Bank credit is growing by about 30%
 Indian banks compare favourably with its Asian peers in asset quality
 Indian banking sector grew by 6 times in the last decade – from Rs. 5,984 bn in
1995 to Rs. 36,105 bn.
 KYC norms and Anti Money Laundering regulations in force
 Indian banks are serving the “Two Faces” of India – the Underprivileged, the
Progressive & the Opulent – with equal aplomb
Indian Banks – in good health…

10. US – India BusinessJanuary 27, 2015 10
Indian Banks – in good health…
About 70000 strong branch network – More
than 60% presence in Rural areas
Consistent growth in profitability – Spread is
getting healthier – from 3.1% in 2004-05 to
3.2% in 2005-06
NPL Ratios compare favourably with global
trends
Consistently out-performing stock indices –
Total Return to Shareholders continues to be
attractive
• PSU Banks : 61.2%
• India Banking : 51.3%
• Old Private : 40.0%
• New Private : 33.9%
TRS Apr 01 – Apr 05
• PSBs : 72%
• Pr.Bks : 19%
• Fgn. Bks.: 7%
• Others include UCBs,
RRBs, LABs & NBFCs
• Spread : 3.2%
• CAR : 12.0%
• ROA : 1.0%+
• Gross NPA : 3.34%
• Net NPA : 2.00%

11. US – India BusinessJanuary 27, 2015 11
Banks – Major Financiers of Growth
 India has one of the strongest financial sector with low systemic
risk
 Upturn in economic activity is mirrored in the sustained growth in
“Demand for Bank Credit”
 Bank credit has increased sharply from 30% of GDP at end-March
2000 to 48% at end-March 2006
 Non-food credit by SCBs increased by an average of 26.1% between
2002-2006 versus its long-term average of 17.8% from 1970 to 2006
 Deployment of credit is quite broad-based with increasing flows
going to infrastructure , SMEs, agriculture and retail sector
(especially residential mortgages) during the past three years

12. US – India BusinessJanuary 27, 2015 12
Indian Banks in the Best of the League of Asian Peers
According to Moody’s Investor Services Analysis :
 Indian lenders have highest Return on Equity (ROE) in Asia
(20.38%), followed by Indonesia (20.19%), New Zealand
(18.83%), Japan (-6.42%)
 Average gross bad loans as share of total loans – India
(8.18%), Philippines (15.05%), Thailand (13.08%), China
(11.80%) and Malaysia (9.73%)
 Cost to Income Ratio in India at 44.56% is in line with the
best regulated Asian countries like Singapore (44.15%),
Taiwan (42.61%) and Hong Kong (40.05%)

13. US – India BusinessJanuary 27, 2015 13
 Banking Regulations
 Credit & Recovery
 Payment Systems
 Communications &
Infrastructure
• Deregulated Interest rate
• Greater freedom to banks
• Significant steps towards Full capital
• Account Convertibility
• SARFAESI Act 2002
• Debt Recovery Tribunal (DRT)
• Real Time Gross Settlements(RTGS)
• Electronic Clearing System (ECS)
• Electronic Fund Transfer (EFT)
• Cheque Truncation - in the pipeline
• Internet Banking, E-Banking, On-line
• Tax Payment / Utility Payments,
• ATM, Mobile Banking
Requirements Fulfillments
Financial Sector Reforms – Going Ahead

14. US – India BusinessJanuary 27, 2015 14
 Capital Norms
 Credit Information
 Financial Track record
 Other Regulatory Initiatives
- Min. Capital @ 9% as against 8% by BIS
- Indian Banks are ahead in Basel II readiness
– implementation road-map targets March
2009
- Min. Capital requirement for entry set @ Rs.
3 bn. for all banks in private sector
- Credit Information Bureau of India Ltd
- List of defaulters on RBI website
- No financial crisis – escaped contagion
effect of South East Asian meltdown
- Strong Regulatory Practice & Prudence in
place for “Managing Affluence”
- Regulatory provisions to bring NBFCs &
UCBs under uniform prudential norms
Area Status
Significant Steps for Improvement…

15. US – India BusinessJanuary 27, 2015 15
1. Overall banking sector is growing by – 18%
2. Retail Sector (CAGR – 5 years)
- Housing Loan : 50.%
- Consumer Durables : 16%
- Credit Card : 45%
- Two Wheeler Loan : 31%
- Car Loans : 26%
- Other Personal Loans : 38%
Indian Banks are on a high growth track…
More than 25% of the Bank Loan Assets are in Retail sector
ensuring high returns - likely to cross Rs. 5700 bn by 2010

16. US – India BusinessJanuary 27, 2015 16
Online Banking in India . . .
Growth of e-Commerce Transactions
130
255
570
1180
2300
0
500
1000
1500
2000
2500
Rs.CR
2002-03 2003-04 2004-05 2005-06 2006-07 • Estimated 4.6* million Indian Internet users
are Banking Online today
• Indians paying bills online is expected to
increase from the current 0.3 million in
2005-06 to 1.8 million by 2007-2008.
• E-commerce transactions will cross the Rs
2000 crore mark (2006-2007) which
translates into an increase of over 300%
from financial year 2004-05.
Indian Banks are on a high growth track…

17. US – India BusinessJanuary 27, 2015 17
 Is there any Untapped Potential in Indian
Financial Market ?
 What is the ‘Big Picture’ ?
Doing Business in India …

18. US – India BusinessJanuary 27, 2015 18
8
13
26
36
58
0
10
20
30
40
50
60
India Thailand Malaysia Taiwan Korea
India
Thailand
Malaysia
Taiwan
Korea
4
9
13
17
37
0
5
10
15
20
25
30
35
40
India Thailand Malaysia Taiwan Korea
India
Thailand
Malaysia
Taiwan
Korea
4
8
16 17
41
0
5
10
15
20
25
30
35
40
45
India Thailand Malaysia Taiwan Korea
India
Thailand
Malaysia
Taiwan
Korea
Consumer Loans /
GDP(%)
Mortgages / GDP(%)
Credit Cards / GDP (%)
Other Retail Loans / GDP
(%)
0.4 2.8
9.8
82.4
121.9
0
20
40
60
80
100
120
140
India Thailand Malaysia Taiwan Korea
India
Thailand
Malaysia
Taiwan
Korea
Consumption boom in India
In each of the area, huge untapped potential left
The Big Picture…

19. US – India BusinessJanuary 27, 2015 19
Mutual Funds – Global Perspective
Mutual Funds as a % of GDP
Global Investment Fund Asset Pool
87
72
30
23 21
6 5
0
10
20
30
40
50
60
70
80
90
100
Australia
USA
Brazil
UK
Korea
India
Japan
1 11 44 77
177
274
344
399
635
468 493 512
13711396
0
200
400
600
800
1000
1200
1400
1600
Philippines
New
Zealand
India
Taiwan
Korea
Singapore
HongKong
Japan
Australia
Ireland
UK
Italy
France
Luxembourg
US$bn
Low Penetration – Indian industry still in early stages
Source : CLSA Asia Pacific
Markets
The Big Picture…

20. US – India BusinessJanuary 27, 2015 20
Life premium/ GDP (%)
Source : Swiss Re Report 2005
Insurance Penetration – Global Landscape
Non Life premium/ GDP (%)
Insurance density (US$ premiums per
capita)
Low Penetration – A large potential still untapped
8.9
8.32
7.27 7.08
4.14
3.6 3.51
2.53
1.78
0.82
0
1
2
3
4
5
6
7
8
9
10
UK
Japan
South
Korea
France
US
Malasiya
Australia
India
China
Indonesia
5.01
3.55
3.13 3.09 2.98
2.22
1.82
0.92 0.7 0.61
0
1
2
3
4
5
6
US
UK
France
Australia
South
Korea
Japan
Malasiya
China
Indonesia
India
Country Life Non Life
UK 3287 1311
Japan 2954 790
France 2474 1093
US 1753 2122
Australia 1366 1203
South Korea 1211 495
Malasiya 188 95
India 18 4.5
China 13 16
Indonesia 10 10
The Big Picture…

21. US – India BusinessJanuary 27, 2015 21
Growth of Card Spending in India . . .
0
5000
10000
15000
20000
25000
30000
2000 2001 2002 2003 2004 2005 2006
No of ATMs
Growth of ATMs in India
 Increasing trend of Plastic Spend
 High Technology Banking Products
 Need for value added services on card
products
 Larger Number of Access Points for
Customers
 Convenience to customer is the key
 Shared network is the future
Growth of Credit and Debit Cards in India
2.8
4.9
7.3
0
1
2
3
4
5
6
7
8
NUMBER OF
CARDS IN Cr
2004 2005 2006
The Big Picture…

22. US – India BusinessJanuary 27, 2015 22
 India - one of 10 fastest-growing population of HNWIs globally
 There are at least 23 Indian citizens amongst the richest people on the
planet
 Non Resident Indians can invest in all Indian Asset Classes
 No. of HNWIs in India – 100,000 (19.3% growth in 2005)
 Salary increases in India – 13.9% is the highest in the world
 Increasing Investment avenues – Art, Realty Funds, Commodities
 Penetration level of wealth management services in India - 10% in
comparison to European markets (60-90%)
 The number of companies listed on the Bombay Stock Exchange, at more
than 6,000, is second only to NYSE.
 Each year 2,500 tonnes of gold is mined (fifth of the world's gold output.)
and 3,500 tonnes is consumed, of which 1,000 tonnes is consumed in
India alone.
Wealth Management & Private Banking – New Growth Opportunities…

23. US – India BusinessJanuary 27, 2015 23
India is fast emerging as the “Back Office” of
the World & the “Global Knowledge Hub”
The Big Picture…
 100 Global Companies outsource from India
 Top Global Banks are present in India
 Largest talent pool
 World class educational / professional institutions
 Increasing Trade activities
 Cost of operations – low

24. US – India BusinessJanuary 27, 2015 24
 Savings Rate @ 29% is low – Offers high potential from an
increasingly affluent community
 Less than 40% of Indian household has a bank account
 Bulging Middle Class – likely to exceed 300 mn
 Only 2% of the Indian population have insurance cover
 Less than 1% of the population is actively participating in
the Stock market
 Number of high net worth households (> Rs. 500,000) is
likely to grow from 200,000 to 400,000 by 2010
 Consumer Finance stands at about 2% to 3% of GDP as
compared to 25% in European market
 Real Estate Market is projected to touch USD 50 bn by 2008
 SME Sector is catching up fast creating huge prospect of
growth
The Story Continues…

25. US – India BusinessJanuary 27, 2015 25
 Capital Requirements – to compete with Foreign banks in the
post 2009 phase
 Financial Inclusion – to remove imbalances in economic
growth
 Banking Sector Consolidation – for improving competitiveness
– need for a clear road-map for “Managed Consolidation”
 HR Challenges – Changing working conditions, re-skilling,
compensation etc.
 Coping with the massive technology adoption programme –
change management – from employees’ as well as customers’
perspectives
Challenges Ahead….

26. US – India BusinessJanuary 27, 2015 26
 High intermediation costs
 Low Productivity
 Better Corporate Governance – higher level of accountability
 Improvement in productivity and efficiency in line with
advanced markets
 Transformation from Plain Vanilla banking’ to “multi-specialist”
banking
Challenges Ahead….

27. US – India BusinessJanuary 27, 2015 27
Thank You