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NSB Bank - India Entry Strategy for Wealth Management
Chanakya, Ahvan 2012
Hoshin Kanri, IIM Indore
Peeyush Kumar | Sayan Maiti | Vaibhav Rastogi
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Agenda
Hoshin Kanri, IIM Indore Chanakya 2012 | 1
Environment Scanning
Comparison of India vs. existing locations of NSB Bank
Analysis of NSB Bank and its services
Analysis of Competition
Evaluation of Entry Options
Segmentation of Customers
Characteristics of products for different segments in India
Lifetime Revenue Opportunity of segments in Indian context
Regions prioritized on the basis of opportunity size and existing competition
Priority listing shows the regions of high attractiveness and underexploited regions
Key initiatives that can be undertaken
Entry Strategy
Sustaining Growth
Attracting and Retaining Talent – HR Strategy
Risk and Mitigation Strategies
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Hoshin Kanri, IIM Indore Chanakya 2012 | 2
Environment Scanning
No. of HNWI individuals
Medium Term-High Long Term-Low
Indian Market is very small as compared to developed market
Growth in No. of HNWI individuals
Medium Term-Low Long Term-High
India boasts a growth of 20.8 % In other developed market it is around 2-3 %
Wealth of HNWI
Medium Term-high Long Term-High
U.S scores highest and
India is among the
least scorers
GDP Growth
Medium Term-Low Long Term-High
India - 5.8 US- 2.4 Japan- 1.5 U.K. 2.3 In US $ Terms
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Environment Scanning…Continued
Hoshin Kanri, IIM Indore Chanakya 2012 | 3
Demography
Medium Term-high Long Term-High
India 73 % of HNWI are
under 50 vis a vis 23 % of U.S.
Competition
Medium Term-high Long Term-Low
India scores low on competition as compared to developed nations In India major players are Kotak, HDFC, ICICI, HSBC, Axis, Deutsche, BNP Paribas, Morgan Stanley
Existing Portfolio of HNWI Individuals
Medium Term-high Long Term-Low
India seems to be best
with 8% total investment in
equity market vis-à-
vis 43% of U.S.
Taxes and Regulation
Medium Term-high Long Term-High
Country Rank
India 72
US 3
Japan 36
UK 16
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Comparison of India vs. existing locations of NSB Bank
0
2
4
6
8
10
No. of HNWIindividuals
Growth in No. ofHNWI
Wealth of HNWI
GDP Growth
Demography
Competition
Existing Portfolioof HNWI
Taxes andRegulation
India
North America
Western Europe
Japan
Hoshin Kanri, IIM Indore Chanakya 2012 | 4
India does well as compared to NSB Bank’s existing locations in most of the parameters
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Analysis of NSB Bank and its services
Hoshin Kanri, IIM Indore Chanakya 2012 | 5
Operates in highly established wealth management destinations
125 year old heritage
Wealth management contributed to 75% of revenues in 2011
Customers include ultra-high-networth and high networth clients, serving over two hundred thousand individuals
Significantly higher employee cost as compared to competitors
Operates in Western Europe, North America and Tokyo
14.35% CAGR growth in revenues from 1997 to 2009.
Negative growth in revenues in 2010 and 2011.
NSB BANK Service Offerings
Offers clients a distinct value proposition, focusing on structured advisory process, sophisticated products and services.
Their wealth management services include portfolio management, financial planning, insurance, and tax planning, among others.
Focus on providing the best quality service which is evident as they hire only the best and their employee salaries are among the best in the industry.
Assuming that NSB banks falls in the Global Investment bank category, the market position of similar banks in India is poor as they use an institutional approach to serve clients and are focused on UHNI and HNI’s only.
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Analysis of Competition
Hoshin Kanri, IIM Indore Chanakya 2012 | 6
Universal Banks
Wealth Management
specialists
Global Investment
banks
Brokers/ Dealers
Family Office Others
Major Players Kotak,
HDFC,ICICI, HSBC, AXIS
Deutsche Bank, BNP Paribas,
Citibank Morgan Stanley
DSP Merrill Lynch, ICICI
Direct
Client Associates
Independent fund/ Insurance
advisors
Present Market
Position Strong Medium Weak Strong Weak Medium
Analysis of competition in the segment
Competition intensity increasing as many global players like NSB planning to enter the market.
Existing players are increasing their operations aggressively.
Existing players looking to use cross selling to sell more products.
Fragmented industry ( If a company can penetrate 2% it will mean 25000 crores assets under mgmt )
Scope of M&A limited due to early days in the industry
Future Challenges
Expected entry of public sector banks into the wealth management sector can change the market dynamics. Given their brand equity, reach, old corporate relationships and ability to invest in top-of-the-line technology platforms, public sector banks will be a formidable competitor, particularly in the mass affluent segment. Developing and retaining advisors will be critical to succeed in the country which has high rates of attrition. As people are the source of competitive advantage, it will become increasingly critical to retain key talent in wake of increasing competition.
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Evaluation of Entry Options
Hoshin Kanri, IIM Indore Chanakya 2012 | 7
Option Pros Cons
Operate as a foreign bank
No major structural changes required – current operational model can be extended
•Higher priority sector lending targets (for foreign banks with 20 or more branches) – sectors in which NSB has no expertise •Limits on increasing number of branches and other regulatory issues
Enter India in partnership with a Universal Bank (Most preferred option)
•Leverage on the existing network of the bank •Access to existing customers of the bank •Less regulatory requirements •Develop market understanding before opening own branch
•Share profits with the partner bank who might retain majority control •In the long-term it is better to go alone
Wholly owned Indian subsidiary*
•Tax benefits announced by the government for subsidiarisation •No limit on branches
•High stamp duty and 30% capital gains tax when converting branches
* If the law comes into effect
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Segmentation of Customers
Hoshin Kanri, IIM Indore Chanakya 2012 | 8
Segment Age Typical Profession Preferred
Channels of service
Level of Service
Technology Adoption
The Young and Affluent
25-50 Years
INHERITORS - Businessmen
Online Standard Services
Expert SELF MADE - Entrepreneurs
PROFESSIONAL – MBA’s, IT and other service professionals
NRI 25-65 Years
Any profession in developed countries
Online + personal
Customized Services
Expert/ Proficient/ Conversant
Middle Aged Rich
50-65 Years
Occupying VP or above level in organizations, CXO’s,
businessmen
Almost entirely personal
Individual Services
Conversant / Beginner
Retired 65+ Years Retired from jobs or in the
twilight of their careers Entirely personal
Individual Services
Beginner
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Characteristics of products for different segments in India
Hoshin Kanri, IIM Indore Chanakya 2012 | 9
The Young and Affluent ( 76% )
Primary Motive – Building Wealth
Ease of Service – Provide services at arms length. E.g. Online services can be offered to this segment as its comfortable using the internet and is proactive in reviewing its investments regularly.
Standardized Services – Standardized structured based products can be provided to this segment.
More risk appetite – As this segment has more risk taking ability, the bank should try to keep on offering innovative products to this segment to retain them.
This segment will provide the highest revenue lifetime value to the bank.
Middle Aged Rich ( 15%)
Primary Motive – Accumulating Wealth, Retirement Planning
Exclusivity – As this class of customers are from the high strata of the society, individual level of services should be provided.
Personal touch–Provide personal attention to this segment as the customers in this segment are highly valued.
Retired (9%)
Primary Motive – Protecting Wealth, succession planning
Individualized attention – Such class of customers are small in size but have more wealth. So special attention should be provided to them.
Tax considerations & QOS – Since there is no tax levied on transfer of assets in India, the propensity to invest for such customers in low. Hence quality of service becomes the differentiating factor for this segment.
NRI
Primary Motive – Accumulating Wealth
Convenience – Again for NRI customers, convenience should be of paramount importance given the location constraints.
Regulatory issues– Given few cases of tax evasion, regulatory tightening is expected to happen in future.
Special attention – Along with young and affluent segment this segment is growing and hence care should be taken to provide both online as well personal attention
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Lifetime Revenue Opportunity of segments in Indian context
Hoshin Kanri, IIM Indore Chanakya 2012 | 10
Lif
etim
e R
even
ue
Op
po
rtu
nit
y p
er a
cco
un
t R
elat
ive
Sca
le
UH
NW
HN
W
Aff
luen
t
You
ng
Aff
luen
t
Old
er
Up
scal
e
Mid
dle
C
ore
Mas
s M
ark
et
Succ
essf
ul
b
egin
ner
s
Old
er
Lo
wer
You
nge
r M
ass
25 Crores
Size of the opportunity = Earning potential X number of potential customers
Out of bounds
Neglected segments with greatest potential in Indian context
Income 25 lakhs – 5 crores
per annum
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Regions prioritized on the basis of opportunity size and existing competition
Hoshin Kanri, IIM Indore Chanakya 2012 | 11
Problem
• Current regulation limits the number of branches that NSB can have • Data about HNIs in each city not available
Approach
• Luxury car brand presence used as an indicator of the attractiveness of the region • Luxury car brands have one of the best penetration levels amongst luxury goods • The top 12 cities were then graded as per the current level of competition for
example the presence of banks like Deutsche Bank and BNP Paribas increased the existing competition
• A final rank was arrived at considering the opportunity size and the level of competition already present
Results
• The 4 metros emerge as regions of “high” attractiveness • Cities like Hyderabad, Bangalore and Ahmadabad also score high on
attractiveness • Some highly attractive cities like Chandigarh do not have significant
competition – opportunity to be the first mover in such cities
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Priority listing shows the regions of high attractiveness and underexploited regions
Hoshin Kanri, IIM Indore Chanakya 2012 | 12
City Attractiveness based on luxury car presence*
Foreign Competitors present Overall Rating
Delhi/NCR High High High
Mumbai High High High
Chennai High High High
Hyderabad High Medium High
Ahmadabad High High High
Bangalore High High High
Chandigarh Medium High Low High
Ludhiana Medium High Medium Medium
Indore Medium High Low Medium
Kolkata Medium High High Low
Pune Medium Low High Low
Jaipur Medium Low Low Low
*The dealership information for luxury brands like BMW, Mercedes, Audi, Rolls Royce, Bentley and Jaguar were used to calculate attractiveness
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Key initiatives that can be undertaken
Hoshin Kanri, IIM Indore Chanakya 2012 | 13
Build Trust Invest in brand building exercises to improve trust Invest in education programmes to educate
customers about different asset classes, its risks and benefits
Invest in advisors Invest in employees through various training and
benefits to improve productivity and retention of advisors Retaining advisors will help in retaining customers in
the long run
Joint Ventures and partnerships Given the reach of incumbent players, partnerships are a
good way to reach to the new customers. NSB can provide the capital and expertise and the local incumbents can provide the systems to reach customers. Effective use of technology should also be used to
increase reach, particular to the technologically expert customer.
Transparency and Compliance The investments should be made transparent and compliant with the GOI regulations.
Bouquet of Products NSB has traditionally focused on its quality of service. In the Indian context, it should target customers with attractive segment focused products.
Increase use to technology & embrace mobility Technology should be used to improve reach and
improve processes Mobility solutions provide wealth management firms
with the ability to conduct business in locations that are not covered by the branch network.
Integrated view to advisors Provide advisors with a panoramic view of clients which will help in enhancing advisor productivity and enable advisors to deliver high-quality services
360 Customer
View
Portfolio View
Financial Profile
Transactions
Accounts
Customer Profile
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Entry Strategy
Hoshin Kanri, IIM Indore Chanakya 2012 | 14
Identify the key strengths and offerings of the bank
Identify the targeted segments ( which the bank wants to target) based on various parameters
Design products based on the customers needs
Identify and prioritize the regions in which to open branches and target customers
Identify the mode through which customers will be served eg. Online Banking, Personal Banking, Individual Banking
Evaluate the best way to make entry based on various parameters like regulatory constraints, tax structure etc
Evaluate performance based on medium and long term benchmarks
1
2
3
4
5
6
7
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Sustaining Growth
Hoshin Kanri, IIM Indore Chanakya 2012 | 15
Control the major drivers of cost
Front office including portfolio managers and product management, often comprises the largest component of cost, approximately 30-40% of revenue. Most of the control must be done here as back office costs like IT are mostly fixed and difficult to control.
Use Cost Management Frameworks to monitor costs and take appropriate action
Use cost management framework to balance profitability vs. growth and take appropriate actions.
Cost Cutting
Lending
Losing Ground
Investing
Pre
tax
Mar
gin
Revenue Growth Rate
Higher
Higher Lower
Penetration into tier I and II cities
Once major metros and cities have been covered use the expertise and knowledge to make inroads into tier I and tier II cities. Contrary to common opinion most of these cities offer better options due to less competition.
Source : Deloitte Achieving profitable growth in Wealth Management
Cross Sell structured products
Cross sell various investment products to clients to keep the client in house.
Design products for middle class
One of the major reasons which emerging markets is so attractive is the increasing middle class. To be successful in the future, NSB bank should also try to come out with products for the burgeoning middle class population in India which primarily keeps their income in savings accounts.
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Attracting and Retaining Talent – HR Strategy
Hoshin Kanri, IIM Indore Chanakya 2012 | 16
Demographics of HNIs are changing requiring change in the skills and profile of managers
Younger HNIs may prefer a team with a few young wealth managers
Poaching rampant in the industry as wealth managers bring clients with them
Apart from hiring, promote internal employees e.g priority bankers to wealth managers
Banks like Credit Suisse and UBS have their own training academies
For retaining employees job rotation and career progression are necessary
• Lateral Hires • Campus
Graduates • Internal
Transfers
Hire
• Internal Training
• External training/certifications
Training • Career progression • Job rotation –
exposure to multiple roles
• Competitive remuneration
Retention
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy
Risk and Mitigation Strategies
Inflation - India is currently experiencing high inflation with food price rises hovering around 17% and Wholesale Price Index around 7.9. Inflationary concerns can force the Reserve Bank of India (RBI) to tighten monetary supply. This in turn will raise interest rates and impact liquid funds.
Withdrawal of stimulus - The economic recovery in India in 2009 was aided by the economic stimulus provided by government through interest rate subvention, reduction in excise duty etc. The fiscal deficit moved up to 6.7% of the GDP which is unsustainable in the medium run.
Regulatory changes - As wealth market is yet to developed India can see some major regulatory changes in future. This might impact the profitability of the bank.
Exchange Rate risk - Profitability of a company may decrease if currency depreciates.
Capital Market Volatility - High volatility may lead to uneven returns for individuals.
Risk related to Inflation, exchange rate can be hedged while capital market volatility can be mitigated though well diversified portfolio. In case of regulatory changes and Stimulus withdrawal, these can be diversified by entering other emerging markets like China.
Risks
Mitigation Strategies
Hoshin Kanri, IIM Indore Chanakya 2012 | 17 Evaluating India’s
Potential Internal & External
Analysis STP
Prioritization of Regions
Key Initiatives Recommended
Strategy
Chanakya, Ahvan 2012
Thank You
Contact Peeyush Kumar – [email protected]
Sayan Maiti – [email protected]
Vaibhav Rastogi – [email protected]
Evaluating India’s Potential
Internal & External Analysis
STP Prioritization of
Regions Key Initiatives
Recommended Strategy