Non-life insurance: product mix by player, FY2007

0

510

1520

2530

3540

4550

New

Indi

a

Nat

iona

l

Orie

ntal

Unite

d

ICIC

I Lom

bard

Baja

j Alli

anz

IFFC

O To

kio

Tata

AIG

Roya

lSu

ndar

am

Relia

nce

HDF

C Ch

ubb

Chol

aman

dala

m

Net

pre

miu

ms

(200

7 Rs

BN

) Motor Fire Health Marine Other

Public sector playersPrivate insurers have a larger focus on motor insurance and a more favourable product mix

Housing Development Finance Corp. and HDFC Bank Ltd. are likely to be the winners in the lending business, with the mortgage lender backed by stable growth, a strong risk management system and low credit costs, and its banking unit benefiting from a strong deposit franchise. Bank stocks are expected to be under pressure as credit growth, which averaged 29% in the last four years, slows and credit costs rise. Asset quality could be potentially the biggest problem for India's banks, which face the risk of bad loans rising. Loans “grew too much, too fast”, said the Oliver Wyman-Morgan Stanley report. The so-called unseasoned loan book (the proportion of book created in the last two years) is the maximum for Indian banks in the Asian context.

Morgan Stanley’s view: near-term stock weakness; long-term opportunties for HDFC and HDFC Bank

Asian banks: proportion of loan book created in the last two years

Credit multiplier (2005-2007)

Interest costs for SMEs have spiked – State Bank of India PLR

10.0

10.8

11.6

12.4

13.2

14.0

Jan

’01

Jul ’

01

Jan

’02

Jul ’

02

Jan

’03

Jul ’

03

Jan

’04

Jul ’

04

Jan

’05

Jul ’

05

Jan

’06

Jul ’

06

Jan

’07

Jul ’

07

Jan

’08

Jul ’

08

Indian banks: credit costs as % of average loans

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

F2005 F2006 F2007 F2008

ICICI Bank HDFC Bank

Axis Bank Bank of Baroda Bank of India Punjab National Bank State Bank of India

Indian banks: valuations pretty rich (Morgan Stanley estimates)

HDFCHDFC Bank ICICI Bank IDFCAxis Bank Kotak Mahindra Reliance Capital IDBISBICorp Bank OBCPNBCanara Union BOBBOI

F2009 P-E P/B

2726.519.814.121.527.930.3

9.117.8

76.59.18.27.29.48.8

4.93.81.6

22.83.44.60.91.80.90.71.21.11.21.11.5

Asia Pacific banks: P-E ratios, 2008-2009

0.0

5.0

10.0

15.0

20.0

25.0

Man

diri

BR

IB

CAW

oori

Dae

guPu

san

IBK

Corp

O

BC

Krun

g Th

Uni

onCa

nara

Han

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in

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han

Chin

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ong

BO

IPN

BN

AB

BO

BCh

CIT

ICD

ah S

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BO

C

Ban

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Min

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ayba

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Con

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NZ

Firs

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ank

W H

ang

ICB

C-A

ICB

CD

BS

Siam

Bco

mm

CBA

Wes

tpac

BO

C H

KSt

. Geo

rge

Meg

aO

CBC

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eong

UO

BFu

bon

BO

QIC

BK

Publ

ic

Ch H

wa

SBI

BEA

Han

g Se

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xis

HD

BK

The next 18-24 months are going to be a period of difficulty for the Indian financial services sector as headwinds begin to bite. In the expectation of a risk-averse regulatory stance, widespread structural change in the market is unlikely. Therefore, the performance gap between the better-positioned players and the average in the sector is likely to widen. Operational efficiency will be a challenge across banking and insurance and keeping a firm grip on costs would be crucial for the financial services sector. The main lever here is not fundamental cost reduction, but rather squeezing productivity from existing resources through better management for performance and investment in process standardization/automation.

Productivity, cost controls will be key to riding out rough patch

Public banks: cost-income ratio vs revenue per employee, FY2007

85%

Allahabad Bank

Andhra BankBank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bankof India

Corporation Bank

Dena Bank

IDBI LtdIndian BankIndian Overseas BankOriental Bank of Commerce

Punjab &Sind Bank

Punjab National Bank

State Bank of India

Syndicate Bank

UCO Bank

Union Bank of India

United Bankof India

VijayaBank

35%

40%

45%

50%

55%

60%

65%

0.6 0.8 1 1.2 1.4 1.6

Revenue per employee (RsMM)

Cost

-inco

me

ratio

(%)

2.0 2.4

Life insurance: expense ratio vs percentage of sales through the agency channel, FY 2007

Aviva

Bajaj Allianz

Bharti AXA

Birla SunlifeHDFC Standard Life

ICICI Prudential ING

VysyaKotak Old Mutual

LIC

Max New York Life

MetLife Reliance Life

Sahara

SBI LifeShriram

Tata AIG

0%

20%

40%

60%

80%

0% 20% 40% 60% 80% 100% 120%

% sales through agency channel

Oper

atin

g ex

pens

e/pr

emiu

ms

Median expenses/premium earned (25%)

Median percentage of sales through agency channel (64%)

1000%

1200%

Life insurance: net NPA ratio vs advances, FY2007

Corporation Bank

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

0000,50Advances (Rs cr)

Net N

PA a

s %

of a

dvan

ces

Median advances (Rs 24,000 cr)

Axis Bank

HDFC BankAndhra Bank

Bank of Baroda

Bank of India

Indian Bank

Indian Overseas Bank

200,000100,000 400,000

Median net NPAratio (0.80%)

Oriental Bank of Commerce

Share of deposits vs share of branches, FY2007Foreign banks outperformed ingathering deposits…

…by attracting more deposits per branch in metropolitan areas

y=1.0xR2=0.95

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Share of branches

Shar

e of

dep

osits

Public sector banks

0

50

100

150

200

250

850

Rura

l

Sem

i-urb

an

Urba

n

Met

ropo

litan

Depo

sits

(Rs

cror

e)/#

bra

nche

s

Nationalizedbanks

SBI group

Private sector banks

All India

Foreign banks

2

y = 11.6xR2 = 0.8

R2

y = 2.3x = 0.4

Private sector

Foreign Banks

0%

10%

20%

30%

40%

50%

Taiw

an

Aus

tral

ia

Hon

g Ko

ng

Mal

aysi

a

S Ko

rea

Sing

apor

e

Chin

a

Indo

nesi

a

Thai

land

Indi

a

0.0

0.5

1.0

1.5

2.0

2.5

3.0

S Ko

rea

Aus

tral

ia

Indi

a

Hon

g Ko

ng

Taiw

an

Paki

stan

Indo

nesi

a

Sing

apor

e

Chin

a

Mal

aysi

a

Thai

land

Greater than 1.5

Less than 1