1 1
Banking
For updated information, please visit www.ibef.org
NOVEMBER
2011
2 2
Contents
Advantage India
Market overview and trends
Growth drivers
Success stories: HDFC, Axis Bank
Opportunities
Useful information
For updated information, please visit www.ibef.org
Banking NOVEMBER
2011
3 3
Banking
For updated information, please visit www.ibef.org ADVANTAGE INDIA
Advantage India
NOVEMBER
2011
Advantage India
• Increase in working population and disposable incomes are likely to propel demand for banking services
• Rural banking is expected to witness strong growth in the future
• Mobile and internet banking to improve operational efficiency
• Vast un-banked population highlights scope for innovation in delivery
• Rising fee incomes improving the revenue mix of banks
• High net interest margins, along with low NPA levels, ensure healthy business fundamentals
• Wide policy support in the form of private sector participation and liquidity infusion
• Budget FY11 to infuse INR60 billion of tier I equity capital in public sector banks
Total asset size:
USD28.5 trillion
FY25F
Total asset size:
USD1.5 trillion
FY11
Source: IBA report titled “Being five-star in productivity--Roadmap for excellence in Indian banking”.
Growing demand Innovation in services
Business fundamentals Policy support
4 4
Contents
Advantage India
Market overview and trends
Growth drivers
Success stories: HDFC, Axis Bank
Opportunities
Useful information
For updated information, please visit www.ibef.org
Banking NOVEMBER
2011
5 5 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS
Evolution of the Indian banking sector
Source: IBA, Aranca Research, BMI Notes: RBI- Reserve Bank of India, FDI is foreign direct investment
Banking NOVEMBER
2011
• 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 • Number of banks increased to-27 public sector banks, 22 private sector banks and 36 foreign banks
• Advent of mobile and internet banking
• Growing FDI in the Indian banking sector
Post 2000
6 6 For updated information, please visit www.ibef.org
The structure of Indian banking sector
Source: RBI, Aranca Research
MARKET OVERVIEW AND TRENDS
Banking NOVEMBER
2011
Reserve Bank of India
Banks
Scheduled Commercial Banks (SCBs)
Public sector banks (27)
Private sector banks (27)
Foreign banks (32)
Regional rural banks (RRB) (84)
Urban cooperative banks (1,674)
Rural cooperative credit institutions (96,751)
Cooperative credit institutions
Financial institutions
All-India financial institutions
State-level institutions
Other institutions
7 7 For updated information, please visit www.ibef.org
Indian banking sector has grown at a healthy and steady pace … (1/2)
MARKET OVERVIEW AND TRENDS
→ Credit off-take has surged at a CAGR of 19.9 per cent over FY06-11
→ Loan growth has been driven by strong economic growth, rising consumerism and income levels
→ Demand has grown for both corporate and retail loans
Growth in credit off-take over past few years
Source: Reserve Bank of India (RBI), Aranca Research
CAGR: Compounded annual growth rate
Banking NOVEMBER
2011
0
100
200
300
400
500
600
700
800
900
FY06 FY07 FY08 FY09 FY10 FY11
CAGR 19.9 %
USD billion
8 8 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS
→ Deposits have grown at a CAGR of 18.2 per cent over FY06-11
→ Deposit growth has been mainly driven by strong growth in savings amid rising disposable income levels
Growth in deposits over past few years
Source: Reserve Bank of India (RBI), Aranca Research
Banking NOVEMBER
2011
Indian banking sector has grown at a healthy and steady pace … (2/2)
0
200
400
600
800
1,000
1,200
FY06 FY07 FY08 FY09 FY10 FY11
CAGR 18.2 %
USD billion
CAGR: Compounded annual growth rate
9 9 For updated information, please visit www.ibef.org
Income from interest, as well as fees, has seen robust growth … (1/2)
MARKET OVERVIEW AND TRENDS
→ Public sector banks account for over 70 per cent of the interest income in the sector
→ Public sector banks lead the pack in interest income growth with a CAGR of 16 per cent since FY08
→ Overall, the interest income for the sector has grown at over 13 per cent CAGR during the period
Interest income growth in Indian banking sector
Source: IBA, Aranca Research
Banking NOVEMBER
2011
0
20
40
60
80
100
FY09 FY10 FY11
Public banks Private banks Foreign banks
USD billion
10 10 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS
→ Public sector banks account for over 60 per cent of the other income in the sector
→ Other income for public sector banks has risen at a CAGR of 6 per cent since FY09
→ Overall, the other income for the sector has risen at 3 per cent CAGR over the period
Other income growth in Indian banking sector
Source: IBA, Aranca Research
Banking NOVEMBER
2011
Income from interest, as well as fees, has seen robust growth … (2/2)
0
3
6
9
12
FY09 FY10 FY11
Public banks Private banks Foreign banks
USD billion
11 11 For updated information, please visit www.ibef.org
High NIM, Low NPA place Indian banking among world’s best … (1/2)
MARKET OVERVIEW AND TRENDS
→ 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
Healthy net interest margins
Source: Company reports, Aranca Research
Banking NOVEMBER
2011
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
HDFC ICICI SBI Axis
12 12 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS
→ Despite the global financial crisis the net non-performing assets (NPA) of Indian banking sector have declined over past few years.
→ Net NPA levels declined from 1.02 per cent in FY07 to 0.97 per cent in FY11, indicating significant improvement in asset quality.
Declining net NPA levels
Source: Reserve Bank of India (RBI), Aranca Research
Banking NOVEMBER
2011
High NIM, Low NPA place Indian banking among world’s best … (2/2)
1.02%
1.00%
1.05%
1.12%
0.97%
0.9%
0.9%
1.0%
1.0%
1.1%
1.1%
1.2%
FY07 FY08 FY09 FY10 FY11
13 13 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS
→ Although public sector banks continue to control majority of the banking assets, their share is gradually declining
→ Share of public sector banks in total assets have declined from 76 per cent in FY05 to 73.7 per cent in FY11
Market share of bank groups by assets
Source: IBA statistics, Aranca Research
Banking NOVEMBER
2011
Private/foreign banks are aggressively increasing asset size … (1/2)
76% 73.7%
17% 19.5%
7% 6.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY05 FY11
Public sector banks Private sector banks Foreign banks
14 14 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS
→ Share of public sector banks in total deposits have also declined from 78.2 per cent in FY05 to 77.9 per cent in FY11
→ This is largely due to the fact that foreign and private sector banks are rapidly capturing share in savings deposit
Market share of bank groups by deposits
Source: IBA statistics, Aranca Research
Banking NOVEMBER
2011
Private/foreign banks are aggressively increasing asset size … (2/2)
78.2% 77.9%
17.1% 17.9%
4.7% 4.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY05 FY11
Public sector banks Private sector banks Foreign banks
15 15 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS
Notable trends in the Indian banking sector … (1/2)
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
• 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
Banking NOVEMBER
2011
16 16 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS
Notable trends in the Indian banking sector … (2/2)
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; diversification of risks
Banking NOVEMBER
2011
17 17
Contents
Advantage India
Market overview and trends
Growth drivers
Success stories: HDFC, Axis Bank
Opportunities
Useful information
For updated information, please visit www.ibef.org
Banking NOVEMBER
2011
18 18 For updated information, please visit www.ibef.org GROWTH DRIVERS
Growth drivers of Indian banking sector
Banking NOVEMBER
2011
Notes: GDP- Gross Domestic Product, KYC- Know Your Customer, RBI- Reserve Bank of India, ATM- Automated Teller Machine
• Favourable demographics and rising income levels
• Strong GDP growth (CAGR of 8.1 per cent expected from 2011-16) 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
Economic and demographic drivers Policy support Infrastructure financing
• 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
Technological innovation
19 19 For updated information, please visit www.ibef.org
→ Rapid urbanisation, decreasing household size and easier availability of home loans has been driving demand for housing
→ 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
Growth in credit to housing sector
Source: Reserve Bank of India (RBI), Aranca Research
Banking NOVEMBER
2011
Housing and personal finance have been key drivers … (1/2)
0
10
20
30
40
50
FY07 FY08 FY09 FY10 FY11
CAGR 8.5 %
GROWTH DRIVERS
USD billion
20 20 For updated information, please visit www.ibef.org
→ Growth in disposable income has been encouraging households to raise their standard of living and boost demand for personal credit
→ Unlike other emerging markets such as China credit-induced consumption is still less in India
Growth in personal finance
Source: Reserve Bank of India (RBI), Aranca Research
Banking NOVEMBER
2011
Housing and personal finance have been key drivers … (2/2)
0
25
50
75
100
125
150
FY07 FY08 FY09 FY10 FY11
CAGR 10.0 %
USD billion
GROWTH DRIVERS
21 21 For updated information, please visit www.ibef.org
→ 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
India’s working age population and GDP per capita
Source: World Bank, IMF, Aranca Research
Banking NOVEMBER
2011
Strong economic growth to propel banking sector expansion … (1/2)
Note: E-Expected, F-Forecasted, GDP- Gross Domestic Product
0
500
1,000
1,500
2,000
2,500
3,000
0
100
200
300
400
500
600
700
2001 2006 2011E 2016F
GD
P p
er c
apit
a U
SD
25-60 age group GDP per capita (RHS)
GROWTH DRIVERS
Population million
22 22 For updated information, please visit www.ibef.org
→ India’s GDP is forecasted to grow at a healthy CAGR of 8.1 per cent during 2011-2016
→ Strong GDP growth will facilitate banking sector expansion
→ The sector will also benefit from economic stability and credibility of monetary policy
Total loans: growth forecast over 2011-16
Source: Business Monitor International Ltd (BMI), Aranca Research
Banking NOVEMBER
2011
Strong economic growth to propel banking sector expansion … (2/2)
GROWTH DRIVERS
34,746
6,254
7,380
9,676
11,611
83,602
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2010E 2011F 2012F 2013F 2014F 2015F
INR billion
23 23 For updated information, please visit www.ibef.org
→ 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
Loan/GDP vs. GDP per-capita in select countries
Source: World Bank Financial Access report 2010, IMF, Aranca Research
Banking NOVEMBER
2011
Low banking penetration indicates huge latent demand … (1/2)
Estonia
Bulgaria Hungary
Czech Republic
Poland Turkey
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)
GROWTH DRIVERS
Size of the bubble represents GDP per capita
24 24 For updated information, please visit www.ibef.org
→ Limited banking penetration in India is also evident from low branch per 100,000 adults ratio
→ Branch per 100,000 adults ratio in India stands at 747 compared to 1,065 for Brazil and 2,063 for Malaysia
Deposit accounts per 1,00,000 adults
Source: World Bank Financial Access report 2010, IMF, Aranca Research
Banking NOVEMBER
2011
Low banking penetration indicates huge latent demand … (2/2)
GROWTH DRIVERS
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Ind
ia
Sou
th A
fric
a
Bra
zil
Po
lan
d
Turk
ey
Mal
aysi
a
US
Ire
lan
d
Au
stri
a
UK
Be
lgiu
m
Banking penetration (deposits/ '000 adults) in India is lower than a number of peers in Emerging countries
Advanced economies
Emerging economies
25 25
Contents
Advantage India
Market overview and trends
Growth drivers
Success stories: HDFC, Axis Bank
Opportunities
Useful information
For updated information, please visit www.ibef.org
Banking NOVEMBER
2011
26 26 For updated information, please visit www.ibef.org SUCCESS STORIES: HDFC, AXIS BANK
Success stories in the Indian banking sector … (1/4)
Banking NOVEMBER
2011
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 : 1,986
• Number of ATMs : 5,471
• Number of employees: 55,752
• Recognition –
• Strongest Bank in Asia Pacific (Asian Banker:2011)
• Best Bank (Bloomberg UTV:2011)
Net profit
238
331
468
614
818
0
100
200
300
400
500
600
700
800
900
FY07 FY08 FY09 FY10 FY11
USD million
Source: Company annual reports, Aranca Research
27 27 For updated information, please visit www.ibef.org SUCCESS STORIES: HDFC, AXIS BANK
Success stories in the Indian banking sector … (2/4)
Source: Company annual reports, Aranca Research
Banking NOVEMBER
2011
71%
24%
5%
Fund income
Fee income
Other income
Advances and deposits
10 13
21 26
33
14
21
30 35
43
0
10
20
30
40
50
FY07 FY08 FY09 FY10 FY11
Advances Deposits
USD billion
Income break-up
28 28 For updated information, please visit www.ibef.org SUCCESS STORIES: HDFC, AXIS BANK
Success stories in the Indian banking sector … (3/4)
Banking NOVEMBER
2011
Axis Bank
• Established in 1994, Axis Bank is the third largest private sector bank in India. The bank is capitalised to the extent of USD85.4 million with the public holding at 53.6 per cent as on 31st March, 2011
• Divisions – Treasury, retail banking, corporate/wholesale banking and other banking business
• Size – Number of branches and extensions : 1,390
• Number of ATMs : 6,270
• Number of employees : 23,600
• Recognition –
• Best Domestic Debt House in India (Asia money :2010)
• Best Bond House in India (Finance Asia :2010)
Net profit
137
223
378
524
706
0
100
200
300
400
500
600
700
800
FY07 FY08 FY09 FY10 FY11
USD million
Source: Company annual reports, Aranca Research
29 29 For updated information, please visit www.ibef.org SUCCESS STORIES: HDFC, AXIS BANK
Success stories in the Indian banking sector … (4/4)
Source: Company annual reports, Aranca Research
Banking NOVEMBER
2011
Advances and deposits
59%
37%
4%
Fund income
Fee income
Other income
Income break-up
8
12
17
22
30
12
18
24
29
39
0
10
20
30
40
50
FY07 FY08 FY09 FY10 FY11
Advances Deposits
USD billion
30 30
Contents
Advantage India
Market overview and trends
Growth drivers
Success stories: HDFC, Axis Bank
Opportunities
Useful information
For updated information, please visit www.ibef.org
Banking NOVEMBER
2011
31 31 For updated information, please visit www.ibef.org OPPORTUNITIES
Rising rural income pushing up demand for banking
Notes: CAGR – Compounded Annual Growth Rate QE – Quick Estimate , RE – Revised Estimate
Banking NOVEMBER
2011
→ The real annual disposable household income in rural India is forecasted to grow at CAGR of 3.6 per cent over next 15 years
→ The Indian agriculture, forestry & fishing sector has grown at fast pace, clocking a CAGR of 16.1 per cent over past 6 years
→ Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector
GDP of agriculture, forestry & fishing sector, at current prices
Source: MOSPI, Aranca Research
Real disposable household income in rural India
Source: McKinsey estimates, Aranca Research
1,875 2,167
2,667
3,229
0
700
1,400
2,100
2,800
3,500
2010 2015 2020 2025
CAGR 3.6 %
0
60
120
180
240
300
FY05 FY06 FY07 FY08 FY09 FY10QE
FY11RE
CAGR 16.1 %
USD billion USD
32 32 For updated information, please visit www.ibef.org
Mobile banking to provide a cost effective solution
Source: TRAI, Aranca Research
Banking NOVEMBER
2011
Banking penetration is low in rural India
• 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
→ 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
0
5
10
15
20
25
30
2007 2008 2009 2010
Rural teledensity
→ Tele-density in rural India soared to nearly 25 per cent in 2010 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
OPPORTUNITIES
%
33 33
Contents
Advantage India
Market overview and trends
Growth drivers
Success stories: HDFC, Axis Bank
Opportunities
Useful information
For updated information, please visit www.ibef.org
Banking NOVEMBER
2011
34 34 For updated information, please visit www.ibef.org USEFUL INFORMATION
Industry Associations
Indian Banks' Association World Trade Centre, 6th Floor Centre 1 Building, World Trade Centre Complex, Cuff Parade, Mumbai - 400 005 India
E-mail: [email protected]
Banking NOVEMBER
2011
35 35 For updated information, please visit www.ibef.org
Glossary
→ 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 → Conversion rate used: USD1=INR 48
→ Wherever applicable, numbers have been rounded off to the nearest whole number
USEFUL INFORMATION
Banking NOVEMBER
2011
36
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
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Disclaimer
For updated information, please visit www.ibef.org DISCLAIMER
Banking NOVEMBER
2011