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16TH – 30TH June 2014 . Vol 1 Issue 5 . For Private Circulation Only
pg 26. INTERVIEW: Dr Viraktamath
pg 31. Indian Economy – Trend indicators
3GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 2
3GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 2
5GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 4
GROUND ZERO - PREVIOUS ISSUES
1st June 2014 Issue 4
1st May 2014 Issue 3
16th April 2014 Issue 2
VOL 1 . ISSUE 5 . 16TH - 30TH JUNE 2014
Vineet Bhatnagar- Managing Director and CEO
EDITORIAL BOARD:Naveen Kulkarni Manish AgarwallaKinshuk Bharti Tiwari Dhawal Doshi
COVER & MAGAZINE DESIGN Chaitanya Modak, www.inhousedesign.co.in
FOR EDITORIAL QUERIES:PhillipCapital (India) Private LimitedNo. 1, 2nd Floor, Modern Centre, 101 K.K. Marg, Jacob Circle, Mahalaxmi, Mumbai 400 011
RESEARCH Automobiles Deepak Jain, Priya Ranjan
Banking, NBFCs Manish Agarwalla, Sachit Motwani, Paresh Jain
Consumer, Media, Telecom Naveen Kulkarni, Vivekanand Subbaraman, Manish Pushkar
Cement Vaibhav Agarwal
Economics Anjali Verma
Engineering, Capital Goods Ankur Sharma, Aditya Bahety
Infrastructure & IT Services Vibhor Singhal, Varun Vijayan
Metals Dhawal Doshi, Dharmesh Shah
Mid-caps Vikram Suryavanshi
Oil & Gas, Agri Inputs Gauri Anand, Deepak Pareek
Pharmaceuticals Surya Patra
Retail, Real Estate Abhishek Ranganathan, Neha Garg
Technicals Subodh Gupta
Production Manager Ganesh Deorukhkar
Database Manager Vishal Randive
Sr. Manager – Equities Support Rosie Ferns
SALES & DISTRIBUTION Kinshuk Tiwari, Ashvin Patil, Shubhangi Agrawal, Kishor Binwal, Sidharth Agrawal, Dipesh Sohani, Varun Kumar
phillipcapitalindiainstitutionresearch@phillipcapital.in
5GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 4
6. COVER STORY: Banking at the bottom of the pyramid
Ground Zero analyses how the banking opportunity at the bottom of the pyramid can be made commercially viable for organized financier
26. INTERVIEW: Dr. Viraktamath
Seed industry veteran talks about the macro opportunity in hybrid rice?
29. Indian Economy – Trend indicators
31. PhillipCapital Coverage Universe: Valuation Summary
LETTER FROM THE MANAGING DIRECTORThe Indian banking sector has undergone a signifi-cant transformation in terms of its size and compo-sition, but still a large segment of India’s population is excluded from the services of the organized financiers. Around 42% of our adult population doesn’t have savings bank accounts and 85% of urban adults do not have access to formal credit. Moreover, only a third of the registered 36.2mn MSMEs have access to formal credit and another 30mn micro enterprises are outside the organized financiers’ ambit.
Organized financiers have been focusing on large corporates, which have audited accounts and income tax returns. Similarly, the focus has been towards individuals with a regular cash flow stream. This has left out a large part of MSMEs and self-em-ployed people, as organized financiers perceived this segment as riskier, unscalable, and commercial-ly unviable.
Our cover story on bottom of the pyramid banking penned by our BFSI team led by Manish Agarwal-la explores the opportunity and presents various business models that can make inclusive banking commercially viable and scalable. Banks need to redesign their business strategies to incorporate BoP banking as a business opportunity and not a corporate social responsibility. To realize this opportunity, entirely new portfolio of products and services have to be created, delivered through radically different distribution structures, which are aligned to the needs and lifestyles of the financially excluded consumer.
Also read our candid interview with Dr. Viraktamath, a seed industry veteran who talks about the macro opportunity in hybrid rice. He believes the industry can jump two-fold in next five years. High-yield crops, like hybrid rice, are one of the important tools for combating food crisis.
Lastly, in our endeavor to provide a first-person-view of the happenings on the ground, we present the “Ground Zero Investor Conference” scheduled on 23rd and 24th of June. Please take a look at the blockbuster lineup and meet us there!
Best Wishes
Vineet
CONTENTS
7GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 6
MFI centre meeting at Jejuri
7GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 6
COVER STORY
The immense opportunity which the bottom of the pyramid (BoP) social group provides
to mainstream financiers is a well known fact. Still, little has been done to exploit the BoP
banking opportunity as it is perceived as economically unviable and unscalable. BoP
banking requires product innovation, unconventional delivery channels, and innovative
risk mitigation tools --- this has been demonstrated successfully by NBFCs / MFIs. The
competition and market dynamics in times to come will force mainstream financiers to re-
visit their BoP banking strategy. The recent crisis has underscored the need for reducing
banks reliance on wholesale deposit and credit and cultivating a retail portfolio of asset and
liability for financial stability. BoP banking is an economically viable business proposition --
banks only need to leverage technology and think out of the box.
pg. 8 BoP - Financially Excluded BoP-Ignoredbyorganisedfinancier___________________________________________pg.9 Opportunity & Challenges BoP Banking - Untapped opportunity but execution challenging___________________________________________pg.13 MYTH V/s Reality More of Myth than Reality___________________________________________pg.22 Big Bank and small saver Anewpathofprofitability___________________________________________
BY MANISH AGARWALLA, SACHIT MOTWANI & PARESH JAIN
9GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 8
The existing banking structure in India is elaborate and has
been serving the credit and banking services’ needs of the
economy. Since 1991, the Indian economy has undergone
significant transformation in terms of its size and composi-
tion. However, the composition has been skewed to industrials (the
banking sector’s exposure to industries is around 45% of total bank
credit while its contribution to GDP is just 26%), leaving huge un-
banked populations, segments, and geographies. According to the
2011 Census data, of the total of 246.7 million households in the
country, only 144.8 million households (58%) avail of banking services.
Also, only a third of the MSMEs (Micro, Small and Medium Enterpris-
es) have access to organized financing channels in India. There are
around 36.2 million registered and unregistered SMEs and another 30
million micro enterprises in the unorganized sector. The sector em-
ploys nearly 80.5mn people, producing total goods and services worth
Rs10.7tn, with fixed investment of Rs6.9tn. All together, the MSME
segment accounts for 45% of the country’s industrial output and 40%
of exports. The overall contribution of this segment to India’s GDP has
been at 8%. And yet, the MSME sector faces a chronic shortage of
bank financing to aid its growth and improvement agendas (just 12%
of total bank credit).
B O P - F I N A N C I A L L Y E X C L U D E D
BoP - Ignored by organised financier
S. No Country Number of Bank Branches
per 1000 KM
Number of ATMs per 1000 km
Number of Bank Branches
per 0.1 mn adults
Number of ATMs per 0.1 mn adults
Bank Deposits (% GDP)
Bank Credit (% GDP)
1 India 33.17 32.67 11.38 11.21 68.64 54.24
2 China 9.17 44.56 7.72 37.51 140.27 90.21
3 Brazil 8.24 20.68 47.26 118.6 45.97 42.42
4 Indonesia 9.24 35.15 9.59 36.47 39.13 32.85
5 Korea 80.36 NA 18.41 NA 77.82 86.43
6 Mexico 6.41 20.89 14.52 47.3 20.76 17.29
7 South Africa 3.04 17.5 10.42 59.93 43.92 73.38
8 UK 52.87 260.97 24.87 122.77 94.93 118.34
9 USA 9.6 35.26 59.19 46.62
10 France 38.07 38.83 106.68 109 34.85 40.41
11 Russia 2.83 13.49 38.22 182 33.86 41.23
Indicator of financial inclusion, 2012
India income pyramid 2011
>17
Lak
h
3.4-
17 L
akh
1.5
- 3.4
Lak
h
Rich
Middle Class
Aspirers
Deprived
<1.
5 La
khA
nnua
l Hous
ehold
Inco
me
Total ho
usehold
1%
13%
30%
56%
BA
NK
s
NB
FCs
MFIs
Source: NCAER
Source: IMF
9GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 8
Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost— The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan).
O P P O R T U N I T Y & C H A L L A N G E S
BoP Banking - Untapped opportunity but execution challenging
Financial inclusion is the process of ensuring
access to mainstream financial services (where and
when needed) to vulnerable social groups at an af-
fordable cost. It is the usage-intensity of a financial
product and service (instead of mere ownership
of a product), which results in sustainable financial
inclusion.
Why BoP banking will become necessary:
l Rising competition and declining spread
in normal banking business: Following the
mantra “Competition in market promotes eco-
nomic efficiency” the Reserve bank of India is
committed to freeing entry in banks. Accord-
ingly, RBI awarded two new banking licenses
and will continue to issue more licenses on tap.
Also, it is exploring the option of differentiated
licenses. The foremost impact on the industry
would be that of enhanced competition. The
next decade will see a dramatic change in
margins as the wholesale debt markets deepen
and corporate customers access the wholesale
markets directly.
l Regulatory compulsion: Banks are required to
lend 40% of adjusted net bank credit to the
priority sector, with certain sub-targets. The RBI
has also been tinkering with the qualification
of priority sector loan in order to ensure that
formal credit is available to the lower strata of
society. Most of the banks have missed their
priority sector targets or sub-targets, forcing
them to rethink their strategy of fulfilling priori-
ty-sector commitment.
The drive towards universal financial access,
including MSME finance, is no longer a policy
choice but a compulsion. With an objective of
ensuring uniform progress in banking services
in all parts of the country, banks were advised
to draw up a roadmap to provide banking
services through a banking outlet in every
unbanked village having a population of over
2,000 by March 2012. Banks successfully met
this target and covered 74,398 unbanked
villages. In the second phase, the roadmap has
been prepared for covering the remaining un-
banked villages (i.e., with population less than
2000) in a time-bound manner. About 490,000
unbanked villages have been identified and
allotted to various banks. The idea behind
allocating villages to banks was to ensure avail-
ability of at least one banking outlet in each
village.
Compulsive regulatory requirement and
rising competition / declining spread in mid
and upper segment of the pyramid will force
players to look at the untapped and profitable
segments at the bottom of the pyramid.
Compulsive regulatory requirement and rising competition / declining spread in mid and upper segment of the pyramid will force players to look at the untapped and profitable segments at the bottom of the pyramid.
11GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 10
l MSME: There are around 36.2 million registered and
unregistered enterprises SMEs and another 30 million micro
enterprises in the unorganized sector. The sector employs
nearly 80.5mn people, producing total goods and services
worth Rs 10.7tn with fixed investment of Rs 6.9tn.
Categories Domestic commercial banks / Foreign banks with 20 and above branches Foreign banks with less than 20 branches
Total priority sector 40% of Adjusted Net Bank Credit or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
32% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Total agriculture 18% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, which-ever is higher. Of this, indirect lending in excess of 4.5% will not be reckoned for computing achievement under 18%.
Nospecifictarget.Formspartoftotalpriority sector target.
Micro & Small Enterprises (MSE)
l 40% MSME advances should go to micro (manufacturing) enterprises hav-ing investment in plant and machinery up to Rs.10 lakh and micro (service) enterprises having investment in equipment up to Rs. 4 lakh;
l 20% of MSME advances should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs.10 lakh and up to Rs.25 lakh, and micro (service) enterprises with investment in equipment above Rs.4 lakh and up to Rs.10 lakh
Nospecifictarget.Formspartoftotalpriority sector target.
Export Credit Not a separate category. Export credit to eligible activities under agriculture and MSE will be reckoned for priority sector lending.
Nospecifictarget.Formspartoftotalpriority sector target.
Advances to Weaker Sections
10% of ANBC or credit equivalent of Off-Balance Sheet Exposure, whichever is higher.
Nospecifictargetinthetotalprioritysectortarget.
Priority sector requirement for SCBs
BoP banking: Opportunities galore
l Housing market: There is a dire shortage in housing for
units priced below Rs 1mn. This demand-supply mismatch
creates a huge potential market for Repco/Gruh Finance.
According to a JLL report, and based on a study by Monitor
Inclusive Market, the potential loan market for housing units
between Rs 300,000 and Rs 1mn is Rs 11trn (USD 220bn).
Residential housing - Demand V/s supply scenarioIndian MSMEs, armed with
an additional public procure-
ment policy demand, will
require huge funding for their
Greenfield and Brownfield
expansions. Public procure-
ment policy (PPP) introduced
by the government of India
in the finance bill of 2012 will
act as a driving force towards
socio-economic reforms by
creating a huge opportuni-
ty for the SME sector. The
policy makes it mandatory for
all public sector organizations
to source a minimum 20% of
Source: RBI
Sour
ce: J
LL
11GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 10
The strategy recommended by the Rangarajan
Committee, which would enable an inclusive financial
sector is as follows:
l Effecting improvements within the existing formal
credit delivery mechanism by leveraging on technol-
ogy based solutions, and evolving new models for
effective outreach.
l Provide access to comprehensive financial services
to at least 50% of the excluded rural cultivating and
non-cultivating households across different states by
2012 and the remaining households to be covered by
2015.
l For achieving the targets under financial inclusion,
leverage on the existing commercial bank branch
network in rural areas and provide access to credit to
at least 250 excluded rural household at each of their
existing semi-urban and rural branch networks.
l Compulsory requirement of opening branches in
un-banked villages. Banks are directed to allocate
at least 25% of the total number of branches to be
opened during the year in un-banked (Tier-5 and
Tier-6) rural centers.
l Open branches where population per rural and semi
urban branch office is much higher than the national
average.
l Innovate customized products taking into consider-
ation their varied needs as the current products and
services do not meet their needs.
l Incentivizing human resource for lending to low-in-
come group and providing inclusive financial servic-
es. Therefore, a proper system of incentives/disincen-
tives system needs to be put in place by the bank’s
management for special efforts/failures to achieve
desired levels of financial inclusion.
l Setting up of financial inclusion promotion and develop-
ment fund, which could initiate activities like Financing
Farmer’s Service Centers that will take the responsibility
of networking on technological front with agricultural
universities. Secondly, setting up institutions like farmer
training centers for promoting rural entrepreneurship.
Thirdly, set up a fund to provide support, education,
and credit linkage to Self Help Groups (SHG). Lastly,
providing additional training and developing skills and
shaping up their attitude towards the poor to help them
efficiently.
l Some of the procedural changes recommended are to
simplify mortgage requirements, exemption from stamp
duty for loans to small and marginal farmers.
l Making marginal farm holdings viable and enabling
their financial Inclusion by initiating government pro-
grams aiming at agricultural productivity, programs for
financing minor irrigation products.
l Regional Rural Banks (RRBs) to extend their services to
the unbanked areas and increase their credit-deposit
ratio and to set targets for microfinance and financial
inclusion, providing funding and technology support.
l To avoid mergers of RRBS at state level across sponsor
banks to ensure firm reinforcement of rural orientation
with a specific mandate on financial inclusion.
l To consider recapitalizing RRBs with negative net worth
as it would facilitate their growth, provide lenders a
level of comfort and enable to achieve standard capital
adequacy ratio.
l Relaxing and simplifying KYC norms to facilitate easy
opening of bank accounts, especially for small accounts
with balances not exceeding Rs. 50,000 and aggregate
credits in the accounts not exceeding Rs. 100,000 a
year.
their total respective procurement from MSMEs (including 4%
from SC/ST owned MSMEs) from April 2015 (FY16) onwards.
This opens up a vast prospect for the investor community in
terms of fixed asset investments and working capital invest-
ments. Moreover, RBI records show that Net Bank Credit
to about 12mn accounts in the MSE sector in March 2012
stood at approximately Rs 6tn. If one account is equated to
one unit and given that there are 36mn MSE units as per the
fourth census conducted by Ministry of MSME, it appears
that 26mn units are still deprived of bank credit. As per
ASSOCHAM estimates, the overall debt finance demand of
MSME sector is in excess of Rs32tn, and of this, only Rs 6tn
(19%) of debt is financed through the formal sector .
13GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 12
MSMEs struggle to access formal source of debt
l Microfinance: Assuming that the entire poor
population of India is a potential microfinance
client base, the market size for microfinance in
India is in the range of 58 to 77 million clients. This
translates to an annual credit demand of USD 5.7
to 19.1 billion (INR 230 to 773 billion) assuming
loan sizes between USD 100-250. If we assume
that the low-income, but economically active
population including small and marginal farmers,
landless agricultural laborers, and micro-entre-
preneurs, are also potential microfinance clients,
the annual credit demand goes further up to an
estimated 245.7 million individuals and USD51.4
billion (INR 2.1 trillion).
l Refinance market of pre-occupied vehi-
cles: The pre-owned vehicle financing market is
largely concentrated towards commercial vehicles.
The addressable target market in the commer-
cial vehicle segment is estimated at Rs 1,900bn
(source: STFL Annual Report) and 60%-65% of the
second-hand CV financing market is dominated
by the unorganized sector. The financing for other
vehicles such as cars and utility vehicles is largely
done by self or informal financing sources. The
outstanding stock of passenger vehicles (car, utility
vehicles, and MPVs) is estimated at 26-24mn units.
Source: Census
The resale in this segment is either funded by self
or informal sources. This segment provides a po-
tential for formal sources after considering custom-
er requirement and inherent risk involved.
Challenges
The formal financial sector continues to treat
providing financial services to the poor as a social
obligation rather than a viable untapped business
opportunity. Some typical challenges faced by the
financially-excluded consumer toward accessing
the mainstream financial services include complex
products, bureaucratic procedures, lack of credit
history, and lack of collateral. From the financer’s
perspective, the challenges for scaling up financial
inclusion include high cost of transactions, huge
upfront investments to create the infrastructure,
market development expenses, lack of standards,
lack of adequate collateral and erratic cashflow.
13GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 12
M Y T H V / S R E A L I T Y
More of Myth than Reality
Myths: One of the biggest myths about rural
banking is high operating costs — i.e. high cost
of reaching the remote areas and small account
holders given the low average ticket size. Moreo-
ver, many believe that potential volumes are low
in the rural business, which also hinders operating
leverage.
Furthermore, rural posting is considered a pun-
ishment by many of the bank’s staff instead of an
opportunity. Rural banking fulfillment is considered
more of a social agenda rather than looking at it
from an economical standpoint.
Another misconception amongst bankers is that
the rural economy is entirely dependent on agri-
culture, which is cyclical and subject to vagaries of
monsoon.
Bankers perceive that the asset quality in rural
banking is relatively weak and recovery is difficult
because of uncertainty over cash flows, incomes
related to vagaries of monsoon, and due to their
limited awareness and inexperience with banking.
Reality: Financial services at the bottom of the
pyramid can be a viable business proposition. It is
important to develop an in-depth understanding
of the consumer. To create a “demand pull” for
their products and services, banks will have to
redesign their products and services radically to
address the real (rather than perceived) needs of
the financially-excluded consumers.
The NBFCs and micro finances have demon-
strated a successful and scalable business model
by financing bottom-of-the-pyramid customers.
The key success factors have been: appropriate
products, simplified processes, cost effectiveness
and ease of accessibility, financial counseling and
mentoring, and incentive-based staff and mar-
ket development. The fact of the matter is that
these financiers are able to generate return ratios
superior to the many of the main stream banks. A
comparison of asset growth, spread, asset quality
and return ratio of banks vs. many of the NBFCs/
micro finance companies (which cater to the bot-
tom of the pyramid segment) suggests that BoP
banking can be a big success provided it is done
in an appropriate manner.
Particulars Banks NBFCs
Loan book growth (CAGR) 21.4 24.3
Average NIMs 2.8 5-10
Average RoA 1.0 2.1
Bank V/s NBFC
Historical return ratio
Source: PhillipCapital Research
Source: RBI
15GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 14
Repco Home Finance – Affordable housing; the next biggie….
Case study 1
Repco Business Model
Promoted by Repco Bank, Repco Home Finance is a hous-
ing finance company which has carved out a niche in the
huge mortgage industry by providing housing loans and
LAP to non-salaried customers who are left untouched
by banks and large HFCs. Repco mainly operates in the
Southern states catering to the peripheries of Tier 1
cities; Tier 2 and 3 cities. For housing loans, the company
sources customers by conducting loan camps once every
2 months.
In the LAP business, Repco largely caters to small
entrepreneurs requiring funds for expansion like
constructing an additional floor by an individual,
expansion of floor area by a restaurant owner etc.
Banks and large HFCs are usually wary of giving
loans to customers in this segment because of the
uncertain cash flows and also because these individ-
uals are unable to furnish audited financials or tax returns.
While both the segments are relatively riskier compared to
lending by large HFCs like HDFC and LICHF, Repco with
its sound risk management systems prices the product
aggressively yielding 12%+ on housing loans and 16% in
LAP. This enables it to earn a healthy risk adjusted NIM
and robust return ratios.
Sour
ce: C
ompa
ny, P
hilli
pCap
ital R
esea
rch
15GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 14
Direct marketing and customer contact
• Reaching out to customer through direct and localized
advertising, loan camps and word of mouth referrals
• Branch offices serve as a single point of contact for
customers
• Loan origination system with real time transmission and
review of loan applications
• Centralized credit appraisal team
• Greater transparency, reduced incidence of fraud, and
speedy operations
Low-cost operations
• Lean branch model with 3-4 employees per branch
with local knowledge
• Lower rentals in tier 2/3 and peripheries of tier 1
• Low administrative costs due to centralized credit
approval mechanism
• Direct business sourcing, no commission expenses
Robust risk management systems and processes
• Risk management systems at every step of loan pro-
cess: personal interview, property site and business
premises visit, valuation and legal opinion from inde-
pendent experts, linking interest rates to credit score,
etc.
• Same person involved in origination, appraisal, moni-
toring and recovery
• Conservative lending metrics: LTV 65% and IIR 50%
• Total loans written off since inception: 0.08% of total
cumulative disbursements
Risks to Repco Home Finance’s business model
The biggest risk for Repco’s business is a severe crash in
property prices making Repco vulnerable to higher Loss
Given Default (LGD) in the event of default. Direct contact
with customers, strong risk management processes and
lower LTVs ensures that these risks are partially mitigated.
Strengths of Repco’s business model
17GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 16
SKS Microfinance – Enterprising the expelled micro segment of India
Case study 2
It does not take much analysis to figure out that the market for financial services for the 50-60 million poor households of India, coupled with about the same number who are technically above the poverty line but are severely under-served by the financial sector, is a very large one— Vijay Mahajan, Managing Director, BASIX
SKS Microfinance is the only listed microfinance entity in
India with a core business of lending for income genera-
tion and productive activities with loan amount ranging
from Rs 4,000 to Rs 14,000. The borrowers’ activities
range from raising cattle to running tea stalls or kirana
(provision) stores.
SKS lends solely to women borrowers under the joint-lia-
bility group-lending model (similar to the Grameen Bank
model) wherein women guarantee each other’s loans.
There are three reasons why SKS lends only to women.
Women tend to use resources more productively than
men, they are more likely to invest most of their income
back into the household, and they are more likely to
avoid risky ventures and instead use loans to undertake
small, manageable activities.
SKS’s approach is to provide financial services at the
doorstep of members in villages and urban colonies. This
allows the poor convenience and savings in terms of cost
and time associated with travelling to mainstream banks
and enables SKS staff to promptly and fully collect repay-
ments. Its loans are designed for convenience with small
weekly repayments corresponding to cash flows. Small first
loans inculcate credit discipline and collective responsibil-
ity.
SKS utilizes a five-member Joint Liability Group (JLG)
lending methodology based on the Grameen Bank model,
wherein each member of the group
serves as the ultimate guarantor for
each of its members. Further, mul-
tiple groups (4 to 10) of members
in a single village are combined
together as a Sangam (Center).
The Sangam is responsible for the
repayment of all groups, creating
a dual joint liability system, where
the Sangam pays in case any of the
group defaults on payment. The
Centre meeting happens every
week, where the Sangam Manager
(Loan Officer) collects loan appli-
cation forms, disburses loans and
collects loan installment.
Micro credit for mobile phone disbursed at SKS centre
17GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 16
SKS Business Model
l Selection of villages: Before starting operations, its
staff conducts village surveys to evaluate local condi-
tions like population, poverty level, road accessibility,
political stability, and means of livelihood.
l Group Formation: Women form self-selected
five-member groups to serve as guarantors for each
other. Experience has shown that a five-member
group is small enough to effectively enforce group
peer pressure and, if necessary, large enough to cover
repayments in case a member needs assistance.
l Compulsory Group Training: CGT is a four-day
process consisting of hour-long sessions designed
to educate clients on SKS processes and procedures
and to also build a culture of credit discipline. Using
innovative visual and participatory teaching methods,
SKS staff introduces clients to its financial products
and delivery methods. CGT also teaches clients the
importance of collective responsibility, how to elect
group leaders, how to affix signatures, and a pledge
that serves as a verbal contract between SKS and
its members. During this training period, SKS staff
Group Center
Branches
MFI
The way MFI’s operate in India
l Five members groups are the basic units
l 5-8 such groups constitute a branch (Centre)
l Centers meet once a week
l Disbursements and collections are made in centre
meetings
l Groups and Centers appraise the loans and under-
take joint liability
l All Centre meetings are attended by the staff of
MFI
l Flat rate of interest calculation
l Started by Grameen Bank of Bangladesh
l Highly standardized processes
l Many adopters all over the world
SKS operating structure
collects quantitative data on each client to ensure
qualification requirements are met, as well as to re-
cord base-line information for future analysis. On the
fourth day, clients take a “Group Recognition Test”
conducted by a different staff member than the one
who trained them. If they pass, they are officially
accepted as SKS members.
l Centre Meetings: During Centre Formation, groups
are combined to form a centre of 3 to 10 groups or
15 to 50 members. Weekly Centre meetings serve
as a time to conduct financial transactions. Meetings
are held early in the morning, so as to not interfere
with clients’ daily activities. A leader and deputy
leader are selected to facilitate meetings and ensure
compliance with SKS procedures. In addition to
financial transactions, members use the weekly
meetings to discuss new loan applications and com-
munity issues. Centre meetings are conducted with
rigid discipline in order to sustain the environment
of credit discipline created during CGT.
Source: Company, PhillipCapital Research
19GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 18
SKS’s JLG model versus the bank’s SHG Linkage model
Self Help Group Model
l Initiated in India in the 1980s
l Clients may be men or women
l A group of 10-20 individuals
l Is an independent entity
l Is usually promoted by Self Help Promoting Institutions
(SHPIs) or MFIs
l Have their own bank accounts and books of accounts
l SHGs collect savings and give loans to their members
l Can borrow on their own account
l SHGs can execute documents
l Are recognized by government
l Also take up social issues
l SHG has its root in social development
l Banks provide loans only after 6 months of group forma-
tion
Loans Savings
Loans Savings
Financial Institutions (e.g. Banks)
SHG
Loans Repayment
MFI
Joint liability of the Group
Loans Repayment
MFI
Joint liability of the Group
Loans Repayment
MFI
Joint liability of the Group
JLG Model
l A group comprising of 5 members
l 4-10 such groups constituting 20-50 members forming a
Centre
l Usually promoted by an MFI
l Mainly promoted for loans, not internal transactions
l No bank accounts
l No books of accounts are maintained by JLGs
l Have to depend on MFI for all their loan requirement
l Are not recognized by the government
l Cannot execute documents
l JLG has its roots in microfinance
l Loans provided immediately by the MFIs after group is
formed
Source: PhillipCapital Research Source: PhillipCapital Research
19GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 18
Shriram Transport Finance is a niche vehicle finance com-
pany with a significant presence in the used CV financing
segment. Despite so many players testing the used vehicle
finance market, STFC has maintained its market leadership
position. While in the new CV finance segment, there is
a strong presence of banks like HDFC Bank and Indusind
Bank, and large asset finance companies like Sundaram
Finance, STFC has carved out a niche in the used CV
financing segment.
The key reason behind the success of its model is the
knowhow and strong customer relationship facilitating
robust track record of collection even though the customer
segment is perceived risky by many of its peers. The typi-
cal borrower is a first time owner of a truck (mainly a driver
turned owner) who, with limited capital, finds it difficult to
purchase a new vehicle.
STFC’s field officers have a strong local knowledge and
they largely source the customers through referrals. The
field officer facilitates the entire process from disbursal to
collections and visits the customer frequently. This helps
them keep asset quality in check despite lending against a
mobile asset.
Shriram Transport Finance (STFC)
Case study 3
Market Share
Performance
Target Segment Small truck owners (less than 2-3 trucks) with underdeveloped banking habits
Existing customer base upgrading to new trucks
Small truck owners (less than 2-3 trucks) with underdeveloped banking habits
5-6%
AUM of approximately Rs. 465.54 bn at the end of FY14
AUM of approximately Rs. 62.50 bn at the end of FY14
CV Financing Business Model
Pre Owned (5-12 Years & 2-5 Years Old CVs)
Lending yields 18-24% (5-12 years)Lending yields 15-16% (2-5 years)
Lending yields 14-16%
New
Source: Company
21GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 20
Knowledge driven valuation model
Vehicle Assessment
60%-70% Loan-to-ValueRatio – Old CVs
75%-85% Loan to ValueRatio – New CVs
In-house Administered Loan Recovery
Knowledge & Relationship based Recovery Procedure
Field Officers Vast Customer Base
Core strength of Shriram Transport’s model
Robust recovery/collection processes
l Due to underdeveloped banking habits of small truck
operators, a large part of monthly collections is in the
form of cash
l Compulsory monthly visits to borrowers by field of-
ficers help in managing large cash collections
l Continuous monitoring of disbursed loans
Prudent credit norms
l Substituted formal credit evaluation tools, such as IT
returns and bank statements, with personal under-
standing of the customers’ proposed business model
l Client and truck-wise exposure limits
Stable asset quality even in downturn
l Asset backed lending with adequate cover
l Target segment generally operates on state highways
and short distances, ferrying essential commodities
Incentive schemes for field officer to facilitate collec-
tions
l Well-defined incentive plan for field officers to ensure
low default rates
l Field officers are responsible for recovery of loans they
originate
Risks in Shriram Transport business model
l Lackluster economic environment can result in higher
delinquencies
l Shriram Transport is vulnerable to mining ban in cer-
tain regions
Source: Company
21GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 20
Supplier’s bargaining power – Medium
l Funds at competitive costs leads to strong margins
l Dependence on banks and financial institutions
l ECB route not permitted
Customer’s bargaining power – Low
l Unique customer base, traditionally perceived ‘risky’ by the banks and organised financiers
l Unorganised financiers charge higher rates
l Lack of banking habits and higher mobility make the segment highly challenging to serve
Threat of entrants – Low
l Unique business model backed by established relationships
l Three decades of industry presence
l Caters to a unique customer base comprising of SRTOs and FTUs.
l Established product valuation expertise
Threat of substitutes – Low
l Inability of FTUs to finance entire asset from their savings
l Valuation of pre-owned asset a major barrier for financing companies
Competition – Lowl First mover and leader in
preowned CV financingl Has created scalable modell Has emerged as a banker to
the pre-owned asset ownersl Highly unorganised industry,
mainly run by private financi-ers
Porter’s five force model for STFC
Source: Company
23GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 22
A new path of profitability
B I G B A N K A N D S M A L L S A V E R
Banking services to the bottom of the pyramid
segment can be a successful and scalable business
proposition provided it is done in an unconven-
tional way. Many banks are still pursuing bottom of
the pyramid banking as a regulatory requirement
rather than treating it as a business model. Banks
have to realize that the bankability of the BoP
segment is a major opportunity for developing a
stable retail deposit base and in curbing volatility
in earnings with the help of a diversified asset
portfolio. The recent crisis has underscored the
need for reducing banks’ reliance on wholesale
deposits and credit and cultivating a retail portfo-
lio of assets and liabilities for financial stability. Two
basic issues that need to be understood:
• Bottom of the Pyramid banking should be
implemented on commercial lines and not on
a charity basis. It is important that banking with
the poor is perceived and pursued as a sustain-
able and viable business model.
• While the poor need not be subsidized, it is
important to ensure that they are not exploit-
ed. The need is to ensure that poor people
who deserve credit are provided access to
timely and adequate credit in a non-exploita-
tive manner.
To realize this opportunity, entirely new portfolio of
products and services has to be created, delivered
through radically different distribution structures,
which are aligned to the needs and lifestyles of
the financially excluded consumer. There are many
supply side (financers) and demand side (custom-
ers) factors impeding the inclusive growth. Ad-
dressing demand side factors is as much important
as addressing the supply side factors.
Key issues needed to be addressed, which will
allay the concerns faced by supply side as well as
demand side, are:
l Appropriate product:
a. Product that caters to their (poor classes) re-
quirements; generally small in denomination
b. Flexible repayment schedule as cash flows are
erratic and largely cyclical
c. Collateral-less lending for small loans below
a certain threshold (physical collateral can be
replaced by a guarantor who has a well-estab-
lished credit history)
d. Affordable insurance product (life as well non-
life)
l Simplified process:
a. Simple and less document-intensive processes
b. Biometric-based identity validation or Letter of
introduction form local citizens with good his-
tory with the bank can be used to authenticate
the beneficiary
l Rapid and cost effective outreach
a. Deploying a well-established network of
trained business correspondents is perhaps
the most cost-effective way of addressing the
accessibility challenge.
a. Self-help group (SHG) and Joint-liability
groups (JLG). The SHG-Bank linkage program
launched in the 1980s in India has been a big
success and it is estimated that by 2007 nearly
3 million SHGs representing nearly 40 million
households were linked with banks in India.
However the empirical evidence suggest lower
delinquencies under Joint liability group (JLC)
vs. SHG
23GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 22
Why is JLG model successful than bank’s SHG model?
Even though the SHG linkage programme has made
impressive progress in the last two decades, the last few
years have seen stagnation in their credit growth. The
main reasons were that A) in SHG, group formation is per-
ceived as a means to avail of government subsidies and
entitlements, which also led to an increase in the number
of multiple memberships in SHGs, and B) the financing
banks were ill-prepared for the sudden spurt in SHG loans
and their monitoring and supervision of such loans be-
came less regular (and even totally absent at times!)
Fresh loans to SHGs have been near stagnant for last few
years; though it showed a marginal rise during 2012-13. A
region-wise analysis, however, shows a disturbing feature
with Southern and Central regions showing an increase
of nearly 20% and 10% in the number of SHGs extended
fresh loans; Northern region too shows a marginal increase
of 1.74%, while all other regions point to negative growth.
Backward states like Bihar, Chhattisgarh and Jharkhand
reported a decline of over 20% while North Eastern States
recorded as high as over 50% decline.
Mounting NPAs in SHG lending
From an envious record of almost 100% recovery of loans
by SHGs, the NPAs of SHG loans by banks have reached
an alarming high of over 7% of the loans outstanding
against them. More painful is the fact that loans to SHGs
in the most resource poor regions in the country reported
NPAs of over 10%. GNPAs in SHG stood at 7.08% in 2012-
13 vs. 2.9% in 2009-10. This explains why banks have been
wary of lending in the SHG segment. The southern region
with a NPA of 5.11% was the lowest, while the central
region with an alarming 17.3% was the highest. A cause
of grave concern is the high NPAs in major states like
Madhya Pradesh (21.16%), Uttar Pradesh (18.22%), Odisha
(18.27%), Tamil Nadu (10.81%) and Kerala (12.38%)
Alarmed by the steady increase in the NPAs of loans to
SHGs, NABARD undertook studies in two important states
- Uttar Pradesh (where the NPA of SHG loans is nearly
18%) and Odisha to understand the underlying reasons for
the spurt in NPAs of loans to SHGs
JLG model successful than the bank’s SHG model
The studies highlighted the following reason for high NPAs
in SHG:
l Focus on group formation for availing subsidy from the
government, not self-help or group dynamics.
l Some groups were not functioning at all - no regular
meetings, no records of transactions, not trained / ex-
posed to SHG functioning, no regular internal savings
or lending, and members were not even aware of the
default of loans.
Self Help Promoting Institutions (SHPI’s) do not provide
the escort services necessary to nurture the SHGs; rather
they are more target oriented and confined to linking the
groups with banks for disbursement of loan and subsidy.
Banks have largely left the issue of monitoring / supervis-
ing the group functioning to the SHPIs, and there were no
regular post disbursement follow-ups.
Widespread prevalence of middlemen / agents for SHG-
Bank linkage - even for depositing the savings amount; this
was leading to pilferages.
No proper credit appraisal or rating of SHGs was done
before extending loans.
No proper training was given to the bank staff or to SHPIs/
SHG members before the groups were linked to banks.
Willful default and external environment was not condu-
cive to regular loan repayment.
SHG lending concentration
South70%
East14%
Central 7%
West4%
North3% North East
2%
Sour
ce: N
ABAR
D
25GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 24
Mobile banking is one of the key pillars (with ATMs and In-
ternet Banking) of revolutionary improvement in the quali-
ty of service delivery of banks. Mobile banking is deemed
to be simply performing banking transactions such as bal-
ance checks, account transactions, and payments with the
help of a mobile phone. The scope of services offered in
mobile banking may include getting account information,
transferring funds, sending checkbook requests, managing
deposits, quick check of transactions and so on. Mobile
banking today is most often performed by SMS (Short
Message Service), known as SMS banking.
Mobile Banking Services in Africa
With the advent of Mobile banking and mobile money ser-
vices, the face of personal and business banking in Africa
has revolutionized. The mobile money services made its
foray in the African economy with the launch of M-PESA in
Kenya and Tanzania in early 2007. The leading mobile op-
erator in Kenya, Safaricom (part of the Vodafone Group),
launched one of the most successful implementations of
a mobile money transfer service, M-PESA. The service
has grown rapidly since launch, and is currently used by
over 8 million subscribers. With mobile money in play, the
need to carry a bank card or cheque book or visiting the
local bank branch to transfer or withdraw money has been
eliminated.
Mobile phone technology has changed retail banking
landscape in all income brackets, but predominantly its
biggest impact has been on the lowest income segments.
Indeed, for many people living in poverty, and deprived
of banking facilities through the formal channels, mobile
phone technology has provided access to basic financial
services, such as cashless money transfers, without having
to hold a bank account at all.
Key Factors contributing to Mobile banking services
The key factors driving the successful implementation of
M-PESA include increasing mobile phone penetration,
limited access to finance (around 38% of people without
Mobile Banking - Revolution in Africa and untapped potential in India
Case study 4
access to any financial services), higher literacy levels,
education among users about the service and benefits of
mobile banking, the rising demand for alternate money
transfer services, lower competitive environment along
with conducive regulatory environment.
Mobile Banking in the Indian Banking Arena
In the Indian context, mobile banking is enjoying a rapid
growth in India. It has successfully crossed the introduc-
tion stage. The service is being channelized from met-
ropolitan cities to urban areas and semi urban areas and
then to the rural areas. The growth of mobile banking in
India is primarily driven by convenience and promptness.
Indian banking industry has already witnessed two more
revolutions in the improvement in the quality of services
delivery as Internet banking and ATMs. Huge growth in
mobile phones, affordability of handsets coupled with
well-designed rates and tariffs by telecommunication
companies has made mobile phone available for every-
body and has indeed become the lifeblood for mobile
25GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 24
l Financial counseling:
a. Counseling and mentoring to the poor as part of basic
banking services.
b. The financial institutions should collaborate to establish
counseling centers around rural inhabitation clusters
and ensure that they are operational when the poor can
access them, e.g., in the evenings.
l Leveraging technology:
a. Many low-income people lack access to financial services
because of the high transaction costs and complex logis-
tics involved in reaching them. Technology companies are
beginning to address these challenges through electronic
transaction platforms, creating opportunities to serve
low-income customers and bringing benefits spanning
convenience, efficiency, security, market access, and inte-
gration into the formal financial system.
b. Enable product innovation: Many of the innovative prod-
ucts being created for the financially excluded consumer
would not have been possible without the usage of tech-
nologies like mobile, wireless connectivity, biometrics,
etc.
c. Improve service efficiency: Their high financial illiteracy
and inability to travel away from work makes the financial-
ly excluded value simplified procedures and quick-turna-
round time.
d. Increase outreach: Central, East and North-East India
have some of the largest concentrations of the financially
excluded population in India due to lack of infrastructure
(including roads and power) and dense forestation. The
populations of these regions often have to travel large
distances over inhospitable terrain to access a financial
institution. The continuing slow pace of infrastructure
development coupled with the long gestation period of
the ‘brick and mortar’ banking model will obstruct any
meaningful impact in these regions. The proliferation of
mobile services in these sub-par infrastructure regions
can result in an increased outreach of financial services at
a faster pace through technology-enabled service deliv-
ery. Many of the financial services discussed above can
be provisioned on the current technology and available
connectivity infrastructure in these regions thereby fulfill-
ing a significant proportion of the financial needs of the
poor.
Conclusion:
Research into the products, practices, and procedures of
the unorganized sector (that currently caters to the bottom
of the pyramid population) is an absolute imperative to
understand the needs of the BoP better. This could throw up
valuable leads for the organized sector (banks and financial
institutions). Research agencies should conduct a census of
moneylenders in rural India to measure their intensity.
To sum up, banks need to redesign their business strategies
to incorporate specific plans to promote financial inclusion
of the low-income group treating it as a business opportu-
nity and not a corporate social responsibility. They have to
make use of all available resources including technology and
expertise available with them as well as the MFIs and NGOs.
It may appear in the first instance that taking banking to the
sections constituting “the bottom of the pyramid”, may not
be profitable but the fact is — relatively low margins on high
volumes can be a very profitable proposition. Financial inclu-
sion can emerge as commercially profitable business. Only
the banks should be prepared to think outside the box!
banking in India.
Key factors providing the platform for Mobile Banking
in India
The success and effectiveness of mobile banking mainly
hinges on the banking system in the country and their
connection with regulatory and supporting system. There
are many factors that support mobile banking in India.
l First, banks are taking the initiative and encouraging
people to register and use mobile banking services.
l Customers are also adopting the services because
they get many benefits.
l Speedy growth in mobile customers and strong IT
services are also big supports behind the success of
mobile banking in India.
Key challenges in the Indian context
The biggest challenge for mobile banking services is edu-
cating mobile users (especially in rural areas) and security
of transactions. All mandatory alerts should be sent to the
customers in time and the complete system should be dis-
ciplined and robust. No information should leak out. Users
should have an easy option to revert wrong transactions
quickly. Mobile banking education should become a part
of banks’ promotional campaigns.
27GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 26
Dr. Viraktamath,Seed industry veteran talks about the macro opportunity in hybrid rice
Here are some excerpts…
How big is the hybrid rice market and how large
can it become?
Rice is the largest sown cereal crop (42mha or
around a third of the total cereal crop sown area)
and India’s production was around 106mmt in FY14.
While we are the second largest producer of rice,
the yields are half the global average. And that is
because almost 95% of our rice areas grows tradi-
tional high-yielding varieties (i.e., use of saved or
Dr. Viraktamath is India’s one of the most respected senior hybrid rice researcher. He has worked as a consultant to the Food and Agriculture Organization of the UN and the International Rice Research Institute and has recently retired as project director from Directorate of Rice Research, Hyderabad. In an interaction with Ground Zero, he talks about his vision and commitment to develop suitable rice hybrids by modern innovative breeding techniques, current status of accept-ance to rice hybrids and future prospects. He is of the view that with a change in mindset and the government’s support, the value of the rice industry can jump two-fold over the next five years.
BY GAURI ANAND
varietal seeds), compared to about 50% in China,
the biggest rice grower, whose use of hybrid tech-
nology has boosted average yields to more than
six tonnes a hectare. Rice is a water-intensive crop
and only 55% of the acreage under cultivation is
irrigated, partly explaining the lower yields and
thus production. For instance, today the hybrid
seed market is dominated by Cotton seeds (40%
of the total seed industry size of US$ 2 bn) given
implementation of BT technology; however cotton
accounts for a meager 1% in volume terms. In
27GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 26
comparison rice accounts for 45% of the industry in
volume terms; however given lower penetration of
hybrid rice seed, the market is just about Rs 6.5 bn
(when included for rice varietal the size is about Rs
14 bn). Hybrid rice is planted in only 2.5mha (6% of
the total area under rice cultivation of 42mha) and
the government targets 10mha by 2025. With great-
er acceptance to hybrid rice seed the market can be
well over Rs 30bn, an impressive CAGR of 17% over
next decade. With change in mindset and the gov-
ernments support the market could jump two-fold in
next five years.
With just about 15~20% increase in yields over
inbreds, does the economics favor use of hy-
brids? How soon can rice hybrids get popular and
what are the impediments to its greater accept-
ance?
As a result of concerted efforts over the last two
decades, totally 70 hybrids have been released so
far (out of which 37 are from private companies).
However, acceptance towards hybrids was rather
slow during initial years because of poor grain qual-
ity and consequently lower market price. But with
the established yield advantage of hybrids (about
15~20% higher) over inbred varieties, rice hybrids
are fast gaining acceptance. Hybrid seed is the only
additional expenditure incurred (Rs 150~200/kg)
over the high-yielding varietal seed of Rs 40~50/kg;
but, given the yield advantage of at least 1.5-2.0 mt/
hectare, the profits are upwards of Rs 10,000~12,000
per hectare, making hybrids slowly a popular choice.
Rice hybrids are only popular in states such as UP,
Bihar, Jharkhand, and Chhattisgarh; large scale
adoption of hybrid rice is expected in these states
over the next decade. Hybrid rice is also picking
up in Haryana and Punjab in recent years. We also
need to develop hybrids specifically suited to high
productivity areas of Punjab and Haryana and for
the coastal region, which is still a grey area. Hybrids
have not made a dent in the southern region. It is
because people in the south prefer medium slender
grains like BPT 5204, Ponni mahsuri, etc., and most
hybrids are long-grained and sticky. In order to suit
the medium slender variety, the researchers have de-
veloped hybrids that are now at par with the popular
variety BPT 5204. With improved technology, the
new hybrids meet the specific grain quality/taste re-
quirement of Southern India and with government’s
push, we expect a greater acceptance ahead.
How critical is the choice of seed to overall pro-
ductivity?
Seed is a critical and basic input for enhancing
agricultural production and productivity in different
agro-climatic regions. Efficacy of other agricultural
inputs such as fertilizers, pesticides, and irrigation
is largely determined by the quality of seed. Seed
The work of Prof. Yuan Longping of Peoples
Republic of China (considered father of Hybrid
Rice), has resulted in the successful development
and commercialization of hybrid rice some thirty
years ago. In China 99% of area under paddy is
irrigated vs. 50% in India — thus average rice
yield in India is half of China (around 3.5 tonnes/
hectare). With rising yields, China feeds an extra
60mn people every year. Hybrid rice has also con-
tributed to improved food security in China. With
increase in yields, the demand for commercial
hybrid seeds have increased, thus driving costs
lower. The Chinese government has provided crit-
ical support to the hybrid rice program through
necessary funding and policies.
India, with 42mha under paddy cultivation is a key
player in Asia and has also identified higher vigor
hybrid rice technology to meet the future food
demand. Hybrid varieties yield 15-20% increase in
yield over the currently available improved varie-
ties of paddy. Rice grown in China is more of the
‘japonica’ type that becomes sticky upon cooking.
Such rice is not accepted in India and hence adap-
tation to suit local conditions, developing hybrids
with still higher yield advantage, and improving
the quality to meet the widely variable quality re-
quirements are some of the research imperatives.
Incorporating inbuilt resistance to major pests and
diseases, aggressive seed production and market-
ing are some of the immediate steps to be taken
to promote hybrid rice in India.
29GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 28
quality is estimated to account for 20-25% of pro-
ductivity. It is, therefore, important that quality seeds
are made available to the farmers.
Given that rice is a self-pollinated crop, we under-
stand it is difficult to crossbreed it. Please explain
the breeding in rice crops.
Hybrid rice is any genealogy of rice produced by
crossbreeding different kinds of rice. As with other
types of hybrids, hybrid rice typically displays hetero-
sis (or hybrid vigor) such that when it is grown under
the same conditions as comparable to high-yielding
inbred rice varieties it can produce up to 20% more
rice.
In crop breeding, although the use of heterosis in
first-generation seeds (or F1) is well known, its appli-
cation in rice was limited because of the self-pollina-
tion character of that crop. In 1974, Chinese scien-
tists successfully transferred the male sterility gene
from wild rice to create the cytoplasmic genetic
male-sterile (CMS) line and hybrid combination. The
first generation of hybrid rice varieties were three-
line hybrids while in recent years two-line hybrids
are becoming popular in China. Hybrid yields are
about 15 to 20% greater than those of improved or
high-yielding varieties of the same growth duration.
In India, too, we have adopted the same technology.
However, given the low level of irrigation, lower use
of fertilizers (just 100 kg/hectare vs. China’s usage
of 300 kg/hectare) and rich soil (China uses very rich
organic matter such as pig manure) our yields are far
from matching China’s productivity. Variable quality
requirements and lack of policy support are other
issues that have resulted in slower spread of hybrid
rice in India.
What are the further innovations the industry is
working on and who are the prominent incum-
bents in this industry?
The researchers are developing hybrids that suit
different agro climatic conditions (especially limited
water condition areas, saline/alkaline soil conditions,
moisture stress, different taste and lengths) for its
greater acceptance. Many promising parental lines
with better floral traits have been developed. Seed
production technology is further refined to improve
average yields by 2.5-3.0 mt/hectare on a large
scale, so that the cost of hybrid rice can be reduced
from Rs 150-200/kg at present. Rice is a water-in-
tensive crop (a kg of rice needs 5000 liters of water);
thus research is also progressing towards developing
aerobic rice (which will consume 50% less water over
inbred varieties).
The successful public-private partnerships can
be best explained in the seed industry. While the
public sector has done excellent work in technology
introduction, it is the private sector that is playing a
key role not only in seed production and marketing
but also in research and development. Prominent
private players in hybrid rice are Bayer Crop (40%
market share), Pioneer (20% market share), Advanta,
Metahelix, Bioseed, Kaveri seeds (8% market share),
JK seeds, Seed Works, Nuzziveedu Seeds, Syngenta,
Mahyco, Rasi Seed, etc.
Is the research cost prohibitively high and will
this drive consolidation?
Research cost is certainly not high, if approached
systematically and pragmatically. Molecular marker
technology or DNA-marker-based assessment of ge-
netic purity of seeds is of crucial importance as it can
considerably lower the gestation period and storage
costs. Marker technology is helpful in predicting
fertility and restoration. While these technologies
are not expensive there is a great lack of awareness
about its advantages. To impart the knowledge and
necessary skills for hybrid rice cultivation there is an
urgent need to train farmers, intensify hybrid culti-
vation, and propagate. The public sector is strong in
technology-generation in terms of releasing hybrids
and optimizing the technologies for seed produc-
tion. However, they are constrained by large-scale
seed production and marketing and that’s where
the private sector scores. Therefore, harnessing the
public-private partnerships is quintessential. More
than 80% of the hybrid seed is being produced in
Telenga (Western Andhra Pradesh – Warangal and
Karimnagar) and largely in dry conditions (during
rabi season). Thus, a consolidation can help over-
come these problems and can support refinements
in seed production technology and this brightens
the prospects for large-scale hybrid rice seed pro-
duction in India.
29GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 28
Indian Economy – Trend Indicators
Monthly Economic Indicators
Quarterly Economic Indicators
Growth Rates (%) Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14
IIP 3.5 1.5 (2.5) (1.8) 2.6 0.4 2.7 (1.2) (1.3) (0.2) 0.8 (1.8) (0.5) 3.4
PMI 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 51.4 52.5 51.3 51.3
Core sector 3.2 2.3 2.3 0.1 3.1 3.7 8.0 (0.6) 1.7 2.1 1.6 4.5 2.5 4.2
WPI 5.7 4.8 4.6 5.2 5.9 7.0 7.0 7.2 7.5 6.4 5.2 5.0 5.7 5.2
CPI 10.4 9.4 9.3 9.9 9.6 9.5 9.8 10.2 11.2 9.9 8.8 8.0 8.3 8.6
Money Supply 13.6 12.4 12.1 12.8 12.5 12.2 12.5 13.0 14.5 14.9 14.5 14.5 14.2 13.9
Deposit 14.4 13.4 13.5 13.8 13.5 13.1 14.1 14.4 16.1 15.8 15.7 15.9 14.6 15.1
Credit 14.1 14.6 14.2 13.7 14.9 17.1 17.8 16.6 15.5 14.5 14.7 14.4 14.3 14.1
Exports 7.0 1.7 (1.1) (4.6) 11.6 13.0 11.2 13.5 5.9 3.5 3.8 (3.7) (3.2) 5.3
Imports (2.9) 11.0 7.0 (0.4) (6.2) (0.7) (18.1) (14.5) (16.4) (15.2) (18.1) (17.1) (2.1) (15.0)
Tradedeficit(USD Bn) (10.3) (17.8) (20.1) (12.2) (12.3) (10.9) (6.8) (10.6) (9.2) (10.1) (9.9) (8.1) (10.5) (10.1)
Net FDI (USD Bn) 1.3 2.8 1.9 1.8 1.7 1.7 3.3 1.8 2.4 1.9 0.4 (0.1) 2.9 -
FII (USD Bn) 1.2 1.6 6.7 (8.7) (4.7) (2.0) 0.2 (0.4) - 2.9 2.6 1.5 5.4 -
ECB (USD Bn) 5.1 1.1 2.5 2.0 3.7 2.3 3.3 1.9 2.2 4.6 1.8 4.3 3.6 3.2
NRI Deposits (USD Bn) 0.7 1.3 1.7 2.5 1.3 1.2 5.9 4.5 14.6 2.0 0.7 0.7 2.5 -
Dollar-Rupee 54.4 54.4 55.1 58.4 60.6 63.0 63.8 61.6 62.6 61.9 62.1 62.2 61.0 60.4
FOREX Reserves (USD Bn) 293.4 296.4 287.9 284.6 280.2 275.5 276.3 283.0 291.3 295.7 292.2 294.4 303.7 309.9
Balance of Payment (USD Bn) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14Exports 80.2 75.0 72.6 74.2 84.8 73.9 81.2 79.8 83.7 Imports 131.7 118.9 120.4 132.6 130.4 124.4 114.5 112.9 114.3 Tradedeficit (51.5) (43.8) (47.8) (58.4) (45.6) (50.5) (33.3) (33.2) (30.7)Net Invisibles 29.8 26.8 26.7 26.6 27.5 28.7 28.1 29.1 29.3 CAD (21.8) (17.1) (21.1) (31.8) (18.2) (21.8) (5.2) (4.1) (1.3)CAD (% of GDP) 4.4 4.0 5.1 6.5 3.6 4.9 1.2 0.8 0.3 Capital Account 16.6 16.5 20.7 31.5 20.5 20.6 (4.8) 23.8 9.2 BoP (5.7) 0.5 (0.2) 0.8 2.7 (0.3) (10.4) 19.1 7.1
GDP and its Components (YoY, %) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14Agriculture & allied activities 3.9 1.8 1.8 0.8 1.6 4.0 5.0 3.7 6.3 Industry 7.4 (0.6) 0.1 2.0 2.0 (0.9) 1.8 (0.9) (0.5)Mining & Quarrying 6.5 (1.1) (0.1) (2.0) (4.8) (3.9) - (1.2) (0.4)Manufacturing 7.5 (1.1) (0.0) 2.5 3.0 (1.2) 1.3 (1.5) (1.4)Electricity, Gas & Water Supply 7.6 4.2 1.3 2.6 0.9 3.8 7.8 5.0 7.2 Services 6.5 6.7 6.5 6.1 5.8 6.5 6.1 6.4 5.8 Construction 7.6 2.8 (1.9) 1.0 2.4 1.1 4.4 0.6 0.7 Trade, Hotel, Transport and Communications 4.0 4.0 5.6 5.9 4.8 1.6 3.6 2.9 3.9 Finance, Insurance, Real Estate & Business Services 10.9 11.7 10.6 10.2 11.2 12.9 12.1 14.1 12.4 Community, Social & Personal Services 5.5 7.6 7.4 4.0 2.8 10.6 3.6 5.7 3.3 GDP at FC 6.3 4.5 4.6 4.4 4.4 4.7 5.2 4.6 4.6
31GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 30
Annual Economic Indicators and Forecasts Indicators Units FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14E FY15E
Real GDP growth % 9.5 9.6 9.3 6.7 8.6 8.9 6.7 4.5 4.6 5.2
Agriculture % 5.1 4.2 5.8 0.1 0.8 8.6 5 1.4 4.0 2.4
Industry % 8.5 12.9 9.2 4.1 10.2 8.3 6.7 0.9 0.0 2.9
Services % 11.1 10.1 10.3 9.4 10 9.2 7.1 6.2 6.0 6.6
Real GDP Rs Bn 32,531 35,644 38,966 41,587 45,161 49,185 52,475 54,821 57,486 60,475
Real GDP US$ Bn 733 787 967 908 953 1,079 1,096 1,008 951 1,008
Nominal GDP Rs Bn 36,925 42,937 49,864 56,301 64,778 77,841 90,097 101,133 113,205 126,723
Nominal GDP US$ Bn 832 948 1,237 1,229 1,367 1,707 1,881 1,859 1,872 2,112
Population Mn 1,106 1,122 1,138 1,154 1,170 1,186 1,202 1,219 1,236 1,254
Per Capita Income US$ 753 845 1,087 1,065 1,168 1,439 1,565 1,525 1,515 1,685
WPI (Average) % 4.5 6.6 4.7 8.1 3.8 9.6 8.7 7.4 6.0 5-5.5
CPI (Average) % 4.2 6.8 6.4 9 12.4 10.4 8.3 10.2 9.5 7.5-8
Money Supply % 15.5 20 22.1 20.5 19.2 16.2 15.8 13.6 13.5 14.0
CRR % 5 6 7.5 5 5.75 6 4.75 4.0 4.0 4.0
Repo rate % 6.5 7.5 7.75 5 5 6.75 8.5 7.5 8.0 8.0
Reverse repo rate % 5.5 6 6 3.5 3.5 5.75 7.5 6.5 7.0 7.0
Bank Deposit growth % 24 23.8 22.4 19.9 17.2 15.9 13.5 14.4 14.6 15.0
Bank Credit growth % 37 28.1 22.3 17.5 16.9 21.5 17.0 15.0 14.3 16.0
CentreFiscalDeficit Rs Bn 1,464 1,426 1,437 3,370 4,140 3,736 5,160 5,209 5,245 5,977
CentreFiscalDeficit % of GDP 4 3.3 2.9 6 6.4 4.8 5.7 5.2 4.6 4.7
Gross Central Govt Borrowings Rs Bn 1,310 1,460 1,681 2,730 4,510 4,370 5,098 5,580 5,639 6,767
Net Central Govt Borrowings Rs Bn 954 1,104 1,318 2,336 3,984 3,254 4,362 4,674 4,233 4,870
StateFiscalDeficit % of GDP 2.4 1.8 1.5 2.4 2.9 2.1 2.3 2.2 2.5 2.5
ConsolidtedFiscalDeficit % of GDP 6.4 5.1 4.4 8.4 9.3 6.9 8.1 7.4 7.1 7.2
Exports US$ Bn 105 129 166 189 182 251 310 307 319 328
YoY Growth % 23.4 22.6 28.9 13.7 -3.5 37.6 23.4 -1.0 3.9 3.0
Imports US$ Bn 157 191 258 309 301 381 500 502 466 500
YoY Growth % 32.1 21.4 35.1 19.7 -2.5 26.7 31.1 0.5 -7.2 7.3
Trade Balance US$ Bn -52 -62 -92 -120 -118 -130 -190 -196 -148 -172
Net Invisibles US$ Bn 42 52.2 75.7 91.6 80 84.6 111.6 107.5 115.2 118.1
CurrentAccountDeficit US$ Bn -10 -10 -16 -28 -38 -45 -78 -88 -32 -54
CAD (% of GDP) % -1.2 -1 -1.3 -2.3 -2.8 -2.6 -4.2 -4.7 -1.7 -2.6
Capital Account Balance US$ Bn 26 45 107 8 52 62 68 89 49 64
Dollar-Rupee (Average) 44.4 45.3 40.3 45.8 47.4 45.6 47.9 54.4 60.5 60.0
Source: RBI, CSO, CGA, Ministry of Agriculture, Ministry of commerce, Bloomberg, PhillipCapital India Research
31GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 30
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33GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 32
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33GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 32
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35GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 34
2014 FIFA World CupTM Schedule
Time Group Match Venue Result
FRIDAY, JUNE 13, 2014
01:30 IST Group A Brazilvs Croatia Arena Corinthians 3--1
21:30 IST Group A Mexicovs Cameroon Estadio das Dunas 1--0
SATURDAY, JUNE 14, 2014
00:30 IST Group B Spainvs Netherlands Arena Fonte Nova 1--5
03:30 IST Group B Chile vs Australia Arena Pantanal 3--1
21:30 IST Group C Colombia vs Greece Estadio Mineirão 3--0
SUNDAY, JUNE 15, 2014
00:30 IST Group D Uruguay vs Costa Rica Estadio Castelão 1--3
03: 30 IST Group D England vs Italy Arena Amazonia 1--2
06:30 IST Group C Ivory Coast vs Japan Arena Pernambuco 2--1
21: 30 IST Group E Switzerland vs Ecuador Nacional 2--1
MONDAY, JUNE 16, 2014
00:30 IST Group E France vs Honduras Estadio Beira-Rio 3--0
03:30 IST Group F Argentina vs Bosnia and Herzegovina Estadio do Maracanã 2--1
21:30 IST Group G Germany vs Portugal Arena Fonte Nova TBD
TUESDAY, JUNE 17, 2014
0:30 IST Group F Iran vs Nigeria Arena da Baixada TBD
03:30 IST Group G Ghana vs United States Estadio das Dunas TBD
21:30 IST Group H Belgium vs Algeria Estadio Mineirão TBD
WEDNESDAY, JUNE 18, 2014
0:30 IST Group A Brazil vs Mexico Estadio Castelão TBD
03:30 IST Group H Russia vs South Korea Arena Pantanal TBD
21:30 IST Group B Australia vs Netherlands Estadio Beira-Rio TBD
THURSDAY, JUNE 19, 2014
0:30 IST Group B Spain vs Chile Estadio do Maracanã TBD
03:30 IST Group A Cameroon vs Croatia Arena Amazonia TBD
21:30 IST Group C Colombia vs Ivory Coast Nacional TBD
FRIDAY, JUNE 20, 2014
0:30 IST Group D Uruguay vs England Arena Corinthi TBD
3:30 IST Group C Japan vs Greece Estadio das Dunas TBD
21:30 IST Group D Italy vs Costa Rica Arena Pernambuco TBD
37GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 36
Time Group Match Venue Result
SATURDAY, JUNE 21, 2014
0:30 IST Group E Switzerland vs France Arena Fonte Nova TBD
3:30 IST Group E Honduras vs Ecuador Arena da Baixada TBD
21:30 IST Group F Argentina vs Iran Estádio Mineirão TBD
SUNDAY, JUNE 22, 2014
0:30 IST Group G Germany vs Ghana Estádio Castelão TBD
3:30 IST Group F Nigeria vs Bosnia and Herzegovina Arena Pantanal TBD
21:30 IST Group H Belgium vs Russia Estádio Maracanã TBD
MONDAY, JUNE 23, 2014
0:30 IST Group H South Korea vs Algeria Estádio Beira-Rio TBD
3:30 IST Group G United States vs Portugal Arena Amazônia TBD
21:30 IST Group B Australia vs Spain Arena da Baixada TBD
21:30 IST Group B Netherlands vs Chile Arena Corinthians TBD
TUESDAY, JUNE 24, 2014
01:30 IST Group A Croatia vs Mexico Arena Pernambuco TBD
01:30 IST Group A Cameroon vs Brazil Estádio Nacional de Brasilia TBD
21:30 IST Group D Italy vs Uruguay Estádio das Dunas TBD
21:30 IST Group D Costa Rica vs England Estádio Mineirão TBD
WEDNESDAY, JUNE 25, 2014
01:30 IST Group C Japan vs Colombia Arena Pantanal TBD
01:30 IST Group C Greece vs Ivory Coast Estádio Castelão TBD
21:30 IST Group F Nigeria vs Argentina Estádio Beira-Rio TBD
21:30 IST Group F Bosnia and Herzegovina vs Iran Arena Fonte TBD
THURSDAY, JUNE 26, 2014
01:30 IST Group E Honduras vs Switzerland Arena Amazônia TBD
01:30 IST Group E Ecuador vs France Estádio Maracanã TBD
21:30 IST Group G United States vs Germany Arena Pernambuc TBD
21:30 IST Group G Portugal vs Ghana Estádio Nacional de Brasilia TBD
FRIDAY, JUNE 27, 2014
01:30 IST Group H SouthKoreavs Belgium Arena Corinthians TBD
01:30 IST Group H Algeria vs Russia Arena da Baixada TBD
2014 FIFA World CupTM Schedule
37GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 36
Time Match Venue Result
ROUND OF 16
SATURDAY, JUNE 28, 2014
21:30 IST 1A vs 2B Estadio Mineirão TBD
SUNDAY, JUNE 29, 2014
01:30 IST 1C vs 2D Estadio do Maracanã TBD
21:30 IST 1B vs 2A Estadio Castelão TBD
MONDAY, JUNE 30, 2014
01:30 IST 1D vs 2C Arena Pernambuco TBD
21:30 IST 1E vs 2F Nacional TBD
TUESDAY, JULY 1, 2014
01:30 IST 1G vs 2H Estadio Beira-Rio TBD
21:30 IST 1F vs 2E Arena Corinthians TBD
WEDNESDAY, JULY 2, 2014
01:30 IST 1H vs 2G Arena Fonte Nova TBD
QUARTER-FINALS
FRIDAY, JULY 4, 2014
21:30 IST Winner Match 51 vs Winner Match 52 Estadio do sMaracanã TBD
SATURDAY, JULY 5, 2014
01:30 IST Winner Match 49 vs Winner Match 50 Estadio Castelão TBD
21:30 IST Winner Match vs Winner Match 56 Nacional TBD
SUNDAY, JULY 6, 2014
01:30 IST Winner Match 53 vs Winner Match 54 Arena Fonte Nova TBD
SEMI-FINALS
WEDNESDAY, JULY 9, 2014
01:30 IST Winner Match 57 vs Winner Match 58 Estadio Mineirão TBD
THURSDAY, JULY 10, 2014
01:30 IST Winner Match 59 vs Winner Match 60 Arena Corinthians TBD
THIRD PLACE
SUNDAY, JULY 13, 2014
01:30 IST Loser Match 61 vs Loser Match 62 Nacional TBD
FINAL
MONDAY, JULY 14, 2014
0:30 IST Winner Match 61 vs Winner Match 62 Estadio do Maracanã TBD
2014 FIFA World CupTM Schedule
39GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 38
39GROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 38
Disclosures and Disclaimers
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PBGROUND ZERO GROUND ZERO 16 - 30 June 2014 16 - 30 June 2014 40
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