Financial Services: Industry Report ,March 2013

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11

Financial Services

For updated information, please visit www.ibef.org

MARCH

2013


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Contents

Advantage India

Market overview and trends

Growth drivers

Success stories: Major players

Opportunities

Useful information


Financial Services MARCH2013


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33

Financial Services

For updated information, please visit www.ibef.org ADVANTAGE INDIA

Advantage India

Advantage

India

Rising incomes are driving the demandfor financial services across incomebrackets

Financial inclusion drive from RBI hasexpanded the target market to semi-

urban and rural areas

Cross-utilisation of channels toexpand reach of financial services

Product innovation is leading tohealthy growth in Insurance andNBFCs

Credit, insurance and investmentpenetration is rising in rural areas

HNWI participation is growing in thewealth management segment

NRFIP aims at providingcomprehensive financial services to atleast 50 per cent of financiallyexcluded rural households by end -2012and the remaining by 2015

Government has set up FinancialInclusion Fund to support financialinclusion

Government is all set to approve newbanking licenses and increase the FDIlimit in the insurance sector

National

savings:

USD1413

billion

2017F

National

savings:

USD569

billion

2011

Source: World Bank, Aranca Research

Notes: HNWI - High net worth individual, NBFC - Non-banking financial company, E - Expected,

NRFIP - National rural financial inclusion plan

Growing demand Innovation

Growing penetration

Policy support

MARCH

2013


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Contents

Advantage India


Growth drivers


Opportunities

Useful information




5/35

55For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS

NBFC - Non banking financial company

Segments of the financial services sector

Financial Services

Financial services

Capital Markets

AssetManagement

Broking

Wealthmanagement

InvestmentBanking

Insurance

Life

Non-life

NBFCs

Asset FinanceCompany

InvestmentCompany

Loan Company

MARCH

2013


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The asset management industry in India is among the fastest-growing in the world

Total AUM of the Mutual Fund industry have clocked a CAGR of 15.6 per cent over

the period FY07-12 to USD138 billion

Total AUM of the Mutual Fund industry grew to USD156 billion in Q2FY13 from

USD138 billion in FY12

Financial Services

Source: AMFI, Aranca Research

Notes: AUM - Assets under management

Mutual Fund AUMs as of September 2012 (USD billion)

110

102

156

146

138

156

FY08 FY09 FY10 FY11 FY12 Q2FY13

Total AUM

MARCH

2013

Asset Management: AUMs have more than

doubled since FY07


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Financial Services

Investor breakup (as of September, 2012)

Source: AMFI, Aranca Research

Note: HNWI - High Networth Individuals

Corporate investors account for around 47 per cent of total AUM in India, while

retail investors and HNWIs account for around 25 per cent each

47%

4%1%

25%,

24%

Corporates

FinancialInstitutions

FIIs

HNWIs

Retail

MARCH

2013

Corporate investors are by far the largest

investor in Mutual Funds category


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Steadily rising turnover in financial markets has led to rapid expansion of the

brokerage segment

The annual turnover value in NSE has witnessed a CAGR of 58.3 per cent over the

period from FY1995 to FY12 to reach USD586 billion

The turnover value in NSE stood at USD361.1 billion for the period April -November 2012

The number of companies listed on the NSE rose from 135 in 1995 to 1661 in

November 2012

Financial Services

Turnover on NSE (Capital Markets Segment)

Source:: National Stock Exchange,

Aranca Research

Notes: CAGR - Compounded annual growth rate,

NSE - National Stock Exchange,

* - Data for FY13 is up to Nov 2012

1461 77 86

175

279

107 129

229238

327

405

740

573

862

745

586

361

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

F

Y13*

MARCH

2013

Broking: Equity market turnover has

increased significantly in recent years

USDb

illi

on


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Financial Services

Registered sub-brokers

Source: SEBI, Aranca Research

Notes: FII - Foreign Institutional Investors

* - Data for FY12 is up to December 2011

62,471

75,37883,952

77,163

FY09 FY10 FY11 FY12*

MARCH

2013

Rising turnover has also resulted in rapid

increase in brokerage companies

The number of registered stocks grew to 8,804 from 8,652 over 2008-10. The number

of registered sub -brokers rose to 83,952 in FY11 as against 62,471 in FY09. During

FY12 (upto December 2011), total registered sub-brokers stood at 77,163

Net investment (both equity and debt) byFIIs stood at USD13.2 billion during the

period April - October 2012

The brokerage market is getting more competitive with entry of new players and

increasing efforts of existing players to gain market share


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HNWIs - the primary focus of the wealth management industry - are estimated to

have close to USD200 billion worth of liquid investable assets

The investable assets of HNWIs in India has expanded at a healthy 26 per cent

CAGR over 2005-10

At present the size of wealth management industry in India is estimated to beUSD20-40 billions, which represents 10-20 per cent of total investable HNWI assets

Advisory asset management and tax planning is the most demanded wealth

management services among HNWIs, followed by financial planning

Financial Services

Total HNWI liquid assets

Source: World Bank, Datamonitor,

Aranca Research

Notes: HNWI - High net worth individuals

6074

87

124

140

192

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010

USDb

illion

MARCH

2013

Wealth management: An emerging segment


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Financial Services

Organised and unorganised segments

Source: Industry reports, Aranca Research

40%

60%

80%

60%

40%

20%

0%

20%

40%

60%

80%

100%

FY07 FY10 FY14E

Organised Un - Organised

Organised segment of the wealth management industry is rapidly gaining ground,

indicating that the sophisticated players are gaining client confidence

MARCH

2013

Wealth management: Organised segment has

grown rapidly


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1212For updated information, please visit www.ibef.org

The life insurance market has grown from USD11.6 billion in FY03 to USD60.8

billion in FY11

Over FY03 to FY11, life insurance premiums have increased at a CAGR of 22.9 per

cent

Life insurance penetration has grown to 4.4 per cent in 2011 from 2.2 per cent in

2001

Source:IRDA, Aranca Research

Life insurance premiums (USD billion)

Financial Services

MARKET OVERVIEW AND TRENDS

1 2 36

11 1317 18

10 1113

16

19

27

31

33

39

42

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

Private Public

MARCH

2013

Insurance: Life insurance segment has

grown significantly in recent years


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The non life insurance market has grown from USD3.1 billion in FY03 to USD9.1

billion in FY11

Over FY03 to FY11, non life insurance premiums have increased at a CAGR of 14.5

per cent

Non-life insurance penetration has grown to 0.7 per cent in 2011 from 0.5 per cent

in 2002

Source:IRDA, Aranca Research

Non life insurance premiums (USD billion)

Financial Services

MARKET OVERVIEW AND TRENDS

0.1 0.3 0.5 1 12 2

3 342

33

33

44

4

5

6

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

Private Public

MARCH

2013

Insurance: Non - life segment has also been

rising


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NBFCs are rapidly gaining prominence as intermediaries in the retail finance space

More than 80 per cent of equipment leasing and hire purchase activity in India is

financed by NBFCs

The AUM of NBFCs in retail finance has doubled over the period 2007-10. Going

forward the AUM is expected to double again over the period 2010-13

Future growth will be driven by new products like gold loans which is expected to

expand at a CAGR of 40-50 per cent over 2011-2013

Financial Services

Growth in AUM of retail NBFCs

Source: CRISIL, Aranca Research

Notes: AUM - Assets under management,

NBFC - Non banking financial company

19.2

30.032.5

38.5

49.4

60.2

71.9

2007 2008 2009 2010 2011E 2012E 2013E

USDb

illion

MARCH

2013

NBFC: Growing in prominence


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Financial Services

Share of NBFCs and banks in retail finance

(ex-housing)

Source: CRISIL, Aranca Research

26 31 3238 42

45 47

74 69 6862 58 55 53

0

20

40

60

80

100

2007 2008 2009 2010 2011E 2012E 2013E

NBFC Banks

Percent

In terms of market share in retail finance (except housing finance) space, NBFCs have

been able to improve their market share from 26 per cent to 38 per cent over 2007-10

By 2013, the NBFC share of retail finance (except housing finance) is expected to rise

to 47 per cent, almost at par with the market share of banks primarily due to strong

presence in rural areas, product innovation and superior delivery of services

MARCH

2013

NBFC: Making a mark in retail finance

domain


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Insurance sector

New distribution channels like bancassurance, online distribution and NBFCs have

widened the reach and reduced the operational costs

The life insurance sector has witnessed the launch of innovative products such as Unit

Linked Insurance Plans (ULIPs)

Mutual Fund

Indias AUM has expanded at 15.6 per cent CAGR over FY07-12; total AUM stood at

USD138 billion as of March 31, 2012

Total AUM of the Mutual Fund industry stood at USD156 billion as on September 2012

In FY09, SEBI removed the entry load to bring about more transparency in

commissions, and thereby encourage longer-term investment

NBFCs

NBFCs have been serving the unbanked customers by pioneering into retail asset backed

lending, lending against securities and microfinance

NBFCs are aspiring to emerge as a one-stop shop for all financial services


Notable trends in the financial services

sector


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Contents

Advantage India


Growth drivers


Opportunities

Useful information



l


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Gross national savings in India stood at USD493 billion in 2010; this is expected to

touch USD1,413 billion by end - 2017

Indias HNWIs wealth is expected to expand at a CAGR of 12 per cent and will reach

close to USD949 billion by 2015

Financial Services

GROWTH DRIVERS

Gross national saving (USD billion)

Source: IMF

Note: E - Estimates, F - Forecasts

493

569655

765898

1,050

1,221

1,413

2010 2011e 2012f 2013f 2014f 2015f 2016f 2017f

MARCH

2013

Gross national savings to continue growing

at a healthy pace

l MARCH


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Financial Services

Indian household Investments (2010)

Source: Opportunities & Challenges Indian Financial Markets

(PWC) Report, Aranca Research

GROWTH DRIVERS

90%

10%Bank deposits &

Government savingschemes

Shares, Debenture &

Mutual funds

Over 90 per cent of household savings are invested in bank deposits and only 10 per

cent in other financial asset classes. Innovative and customised products are expected

to shift bank deposits to these asset classes

The quantum of savings that Indians are making is set to present immense

opportunities for financial intermediaries to move savings to more productive channels

MARCH

2013

Indian households are the major contributors

of rising savings

F l S MARCH


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The Indian equity market is expanding in terms of listed companies and market cap, widening the playing field for brokerage firms

Sophisticated products segment is growing rapidly, reflected in the steep rise in growth of derivatives trading

With the increasing retail penetration there is immense potential to tap the untapped market. Growing financial awareness is expected to increase the fraction of population

participating in this market

Financial Services

GROWTH DRIVERS

Number of listed companies - NSE

Source: National Stock Exchange, Aranca Research

Growth in turnover for derivatives segment (USD billion)

Source: National Stock Exchange, Aranca Research,

Note: Data for FY13* is for the period April to Nov 2012

1,069

1,228

1,3811,432

1,470

1,574

1,646

1,661

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13*

92 444 531

1,005

1,533

2,727

2,294

3,680

6,0936,531

4,216

MARCH

2013

Continued growth in equities and innovative

products

F l S MARCH


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2121For updated information, please visit www.ibef.org GROWTH DRIVERS

Financial Services

Wealthmanagement

HNWIpopulation

NRI/PIOsegment

Risingincomes

Growingpenetration

With a fast rising economy, the investable

wealth of HNWI segment is rising, creating a

need for wealth services

The fraction of HNWIs who use wealth

management services is growing, with a current

estimated level of 20 per cent

The HNWI population in India is estimated to be

rising at over 20 per cent annually adding to the

addressable market of wealth management

Remittances from Non-Resident Indians

(NRIs) and People of Indian Origin (PIOs)

- at USD21.9 billion between April and

December 2011 - adds to the size of the

segment

MARCH

2013

Wealth management to ride the wave of

rising liquid assets

Fi i l S i MARCH


22/35


Financial Services

Insurance

Auto /Engineering

Agriculture

Health

Micro-insurance

Only 1 percent population covered currently,

suggesting that the vast market is yet to be

tapped. Health insurance accounts for 1.2

percent of total healthcare spend

Targeted at rural segment, potentially

addressing two-thirds of Indian population

Policy incentives are driving growth

Rising number of passenger cars, insurance for

construction activity will rise with Indias

infrastructure growth plans

Demand for agricultural and livestock

insurance growing on the back of rising

awareness among rural population

MARCH

2013

Insurance to benefit from widening reach

across segments

MARCHFi i l S i


23/35


Tax incentives

Insurance products are covered under the EEE (exempt, exempt, exempt) method of

taxation. This translates to an effective tax benefit of approximately 30 per cent on

select investments (including life insurance premiums) every financial year

Rajiv Gandhi Equity Savings scheme has been introduced in the Union Budget FY13,which allows for tax deduction of 50 per cent to new retail investors who invest upto

INR50,000 directly in equities and whose annual income is below INR1 million

Union Budget

2012-13

Various steps have been taken for deepening the reforms in the capital markets,

including simplification of IPO process, allowing QFIs to access the Indian bond

markets

Removal of the cascading effect of Dividend Distribution Tax (DDT) in a multi-tier

corporate structure. Continuation to allow repatriation of dividends from foreign

subsidiaries of Indian companies at a lower tax rate of 15 per cent up to March 31, 2013

Reduction in securities transaction tax by 20 per cent from 0.125 per cent to 0.1 per centon cash delivery transactions

Source:Dun and Bradstreet, Aranca Research

Notes: QFI - Qualified Foreign Investors

MARCH

2013Financial Services

Favourable policy measures have aided the

sector


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Contents

Advantage India


Growth drivers


Opportunities

Useful information



Fi i l S i MARCH


25/35

2525For updated information, please visit www.ibef.org SUCCESS STORIES: MAJOR PLAYERS

Financial Services

UTI Asset Management Company Ltd

Established in 2003, appointed by UTI Trustee Co, Pvt Ltd for

managing the schemes of UTI Mutual Fund

Divisions - Domestic mutual funds, Portfolio Management

Services, Venture Capital and Private Equity Funds

Features - Domestic schemes: 81

AUMs: USD12 billion

Network: 149 financial centres

Recognition -

Star Fund House of the year - Debt (ICRA: 2011)

Awarded 7 ICRA Mutual Fund Awards 2012

Source:Company website, Aranca Research

Net profit (USD million)

21

28

3130

24

35

29 28

FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY11 FY12

MARCH

2013

Success stories: UTI Asset Management

Company

Fi i l S i MARCH


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Financial Services


13

16

33

19

36

29

22

FY 06 FY 07 FY 08 FY 09 FY 10 FY11 FY12

MARCH

2013

Success stories: Motilal Oswal Financial

Services Limited

Motilal Oswal Financial Services Limited

Established in 1987, Motilal Oswal Financial Services Limited

provides various diversified financial services in India

Divisions - Broking and Distribution, Institutional Equities,

Investment Banking, Asset Management, Wealth Managementand Private Equity

Features - No of registered customers: 750,077

Business Locations: 1,554 locations

Recognition -

Best Equity Broker Award - 2012 (Bloomberg UTV)

Best Performing Financial Advisor (CNBC TV18

Financial Advisor Awards - 2012)


Fi i l S i MARCH


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Financial Services


6

913 20

47

103

186

FY 06 FY 07 FY 08 FY 09 FY 10 FY11 FY12

MARCH

2013

Success stories: Muthoot Finance Limited

Muthoot Finance Limited

Muthoot Finance Limited is the largest gold financing company in

India in terms of loan portfolio. The company provides personal

and business loans secured by gold jewellery

Divisions - Financing, Power Generation and FM Radio

Features - No of branches: 3,853

Gold loans under management: USD4.8 billion

Number of employees: 24,857

Ratings - IPO grade of 4/5 to the proposed IPO of Muthoot

Finance (CRISIL)


Fi i l S i MARCH


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Financial Services


(23)

(15)

3

14

21

42

(30)

(20)

(10)

-

10

20

30

40

50

FY 07 FY 08 FY 09 FY 10 FY 11 FY12

MARCH

2013

Success stories: Kotak Mahindra Old

Mutual Life Insurance Limited

Kotak Mahindra Old Mutual Life Insurance Ltd

Established in 2000, Kotak Mahindra Old Mutual Life Insurance

Ltd offers life insurance products in India. It is a 74:26 joint

venture between Kotak Mahindra Bank Ltd, its affiliates and Old

Mutual Plc

Plans - Protection Plans, Savings and Investment Plans,

Retirement Plans, and Child Plans

Features - No Of customers covered: 5,47,321

AUMs: USD2.0 billion

Number of employees: 5,565

No of branches: 389



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Contents

Advantage India


Growth drivers


Opportunities

Useful information



Financial Services MARCH


30/35

3030For updated information, please visit www.ibef.org OPPORTUNITIES

Two-third of Indias population lives in rural areas where financial services have made few inroads so far. Rural India, however, has seen steady rise in incomes creating an

increasingly significant market for financial services

There are several stand-alone networks of SHG, NGOs,MFIs in different parts of rural India. Cross-utilisation of these channels can facilitate faster penetration of a wider suite

of financial services in rural India

Increasing use of technology to reach rural India is the paradigm-shifting enabler. Internet kiosk based channels are expected to become the bridge that connects rural India to

financial services

Financial Services

MFI - Micro finance institutions; NGO - Non governmental organisation;

SHG - Self help groups

Rural credit segment is a large market, which can be tapped by ensuring timely loans which arecritical to agricultural sector

Self Help Groups and NGOs are useful vehicles to make inroads into rural India

Credit

Safe investment options have a potential to tap into rural household savings

Some private players are coming up with innovative products like third-party money marketmutual funds to cater to rural investment needs

Investments

Agricultural, livestock and weather insurance are potentially large markets in rural India

Harnessing existing networks of MFIs, NGOs can speed up the processInsurance

MARCH

2013

Huge untapped potential at the bottom of

the pyramid



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3131For updated information, please visit www.ibef.org OPPORTUNITIES

India is one of the fastest growing wealth management markets in the world

The HNWI population in India is young and therefore more receptive towards

sophisticated financial products

In addition to over 50,000 HNWIs with USD200 billion worth of assets, India has

over 2.5 million wealthy individuals whose liquid assets are close to another USD500

billion

Financial Services

Source:Datamonitor, Aranca Research

The regulatory environment for fiduciary duties in wealth management is evolving; players willbenefit greatly from quickly adopting new investor protection measures

Investor protection

Brand building coupled with partnership based model will improve the advisory penetration.Greater focus on transparency will speed up the process

Brand building

Investment in required technologies, imbibing state-of-the-art best practices of advisory andcreating customised and innovative products will enable growth

Innovation

Demographic age-wise breakup of HNWIs (2010)

73%59%

26%

17%

26%

35%

10% 15%

39%

0%

20%

40%

60%

80%

100%

India APAC US

Under 50 51-65 Over 65

2013

... as well as at the other end of the spectrum


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Contents

Advantage India


Growth drivers


Opportunities

Useful information





33/35

3333For updated information, please visit www.ibef.org USEFUL INFORMATION

Industry Associations

Insurance Brokers Association Of India (IBAI)Maker Bhavan No 1, 4th Floor,

Sir V T Marg, Mumbai - 400 020

India

Phone: 91-11-22846544

E-mail: [email protected]

Association of Mutual Funds in India (AMFI)One Indiabulls Centre,

Tower 2, Wing B, 701,

841 Senapati Bapat Marg,

Elphinstone Road, Mumbai - 400 013

India

Phone: 91-11-24210093/24210383

Fax: 91-11-43346712


Finance Industry Development Council (FIDC)222, Ashoka Shopping Centre,

II Floor, L T Road, Near G T Hospital

Mumbai - 400 001

India

Phone: 91-11-2267 5500

Fax: 91-11-2267 5600


Financial Services2013



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Glossary

AUM: Assets Under Management BSE: Bombay Stock Exchange CAGR:Compound Annual Growth Rate FIIs: Foreign Institutional investors GDP: Gross Domestic Product HCV: Heavy Commercial Vehicle HNWIs:High - net - worth Individuals IRDA:Insurance Regulatory and Development Authority LIC: Life Insurance Corporation NBFCs: Non Banking Financial Company NSE: National Stock Exchange RBI: Reserve Bank of India SEBI: Securities and Exchange Board of India USD: US Dollar

Conversion rate used: USD1= INR 48

USEFUL INFORMATION




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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

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For updated information please visit b f


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Financial Services: Industry Report ,March 2013

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Transcript of Financial Services: Industry Report ,March 2013