- 1. Doing Business in IndiaThe Big Picture A Bankers
PerspectiveUS India Business SummitNovember 29, 2006 Dr. Anil K
KhandelwalChairman & Managing Director Bank of Baroda May 5,
2009 US India Business Summit, 20061
2. Indian Economy A Snapshot One of the fastest growing in the
world Consumption growth fuelling economic growth consumption
expenditure forming 78% of GDP Services sector contributing over
60% to GDP Emerging as ahub of manufacturing excellence. new growth
engines of Indian economy include IT, ITes, pharmaceuticals, bio-
technology, nano technology, agri. businesses Where forces of
competition are at work Innovation driving enterprises Economic
reforms well on course entering second phase May 5, 2009 US India
Business Summit, 20062 3. Indian Economy A Snapshot Inclusive
growth occupying central place High untapped potential in rural /
agri - economy Indian companies on acquiring spree and going global
Indian companies pursuing global best practices and producing
world-class managers May 5, 2009US India Business Summit, 20063 4.
Improved Ranking on Business Front World Bank IFC Report on Doing
Business in Indiafor 2007 has given a higher rank to India
comparedto last year because : - India has cut the time to start a
business from 71 to 25 days- Reduced the Corporate Income Tax rate
from 36.59% to 33.66%- Supreme Courts decision has made enforcing
collateral simpler easing access to credit- Reforms to Stock
Exchange Regulations have toughened investor protection May 5,
2009US India Business Summit, 2006 4 5. The Indian Financial Sector
Robust financial system Well established institutions Strong
supervisory system Progressive integration of financial markets -
banking, insurance,mutual funds, securities, commodities High
competition marked by innovation High technology absorption
Rediscovery of the Indian customer 21st century customer driving
innovations in banking Banking plus financial services becoming the
new offerings May 5, 2009 US India Business Summit, 2006 5 6. The
Indian Financial Sector Alternate e-delivery channels becoming
popular with Indian customers Financial sector bracing to meet life
cycle and life style needs of the great Indian middle class Cradle
to Grave becoming the new spectrum of life cycle needs Banking
graduating beyond traditional boundaries of vanilla banking Indian
customer demanding TOTAL FINANCIAL SOLUTIONS Banking sector bracing
itself to offer customized and structured products May 5, 2009 US
India Business Summit, 20066 7. The Indian Financial Sector Banking
sector entering newer areas like wealth management, privatebanking,
doorstep banking, electronic banking, credit cards,
investmentadvisory services, etc. Indian banks in a war game to
acquire and retain customers Indian middle class being reached out
and wooed by banks Indian middle class and financial sector
beginning to dream together andweave a new bond of relationship
Financial products like mutual funds, life policies, non-life
policies competingwith traditional banking products Banking sector
fully geared for helping Indian middle class realize its dream
Banking sector in good health with low non-performing assets
andprudential accounting standards in place Indian banking entering
the phase of consolidation (2nd Phase of Reform) onway to acquire
global size May 5, 2009 US India Business Summit, 2006 7 8. Robust
& Resilient Banking Sector A free & open banking sector
where most businesses are now covered at themarket-determined rates
Full banking license system Highly Stable Sector despite a series
of Exogenous Shocks like the AsianCrisis, Sanctions due to Nuclear
Explosions, Record High Oil Prices andLarge Corrections in Stock
Markets Significant improvement in the Asset Quality: Net NPAs (%)
have decreasedfrom 8.1% at end-March 1997 to 2.0% at end-March 2006
despite tightening ofprudential norms Capital Adequacy Ratio (%) of
the banking sector has increased from 10.4% atend-March 1997 to
12.8% at end-March 2006 Operating Expenses of SCBs have declined
from 2.1% of Total Assets in 1992to 1.8% in 2005 indicative of
improved efficiency Intermediation costs of SCBs have declined from
2.9% in 1995-96 to 2.1% in2005-06May 5, 2009US India Business
Summit, 20068 9. Indian Banks in good health Strong Regulatory
& Supervisory system RBI has strengthened prudential norms with
respect to income recognition,disclosures and capital adequacy
India complies with BIS 26 norms of best practices of supervisory
criteria,country risk & convertibility Indian banks are well on
road towards BASEL II compliance Credit Deposit Ratio is increasing
PSB : 66.2%, Pvt. Banks : 76.3% Bank credit is growing by about 30%
Indian banks compare favourably with its Asian peers in asset
quality Indian banking sector grew by 6 times in the last decade
from Rs. 5,984 bn in1995 to Rs. 36,105 bn. KYC norms and Anti Money
Laundering regulations in force Indian banks are serving the Two
Faces of India the Underprivileged, theProgressive & the
Opulent with equal aplombMay 5, 2009 US India Business Summit,
20069 10. Indian Banks in good health PSBs : 72% About 70000 strong
branch network More Pr.Bks : 19% than 60% presence in Rural areas
Fgn. Bks.: 7% Others include UCBs, RRBs, LABs & NBFCs
Consistent growth in profitability Spread is Spread : 3.2% getting
healthier from 3.1% in 2004-05 to CAR: 12.0% ROA: 1.0%+ 3.2% in
2005-06 Gross NPA : 3.34% NPL Ratios compare favourably with global
Net NPA : 2.00% trends TRS Apr 01 Apr 05 PSU Banks : 61.2%
Consistently out-performing stock indices India Banking : 51.3%
Total Return to Shareholders continues to be Old Private: 40.0% New
Private : 33.9% attractive May 5, 2009 US India Business Summit,
2006 10 11. Banks Major Financiers of Growth India has one of the
strongest financial sector with low systemicrisk Upturn in economic
activity is mirrored in the sustained growth inDemand for Bank
Credit Bank credit has increased sharply from 30% of GDP at
end-March2000 to 48% at end-March 2006 Non-food credit by SCBs
increased by an average of 26.1% between2002-2006 versus its
long-term average of 17.8% from 1970 to 2006 Deployment of credit
is quite broad-based with increasing flowsgoing to infrastructure ,
SMEs, agriculture and retail sector(especially residential
mortgages) during the past three years May 5, 2009 US India
Business Summit, 200611 12. Indian Banks in the Best of the League
of Asian Peers According to Moodys Investor Services Analysis :
Indian lenders have highest Return on Equity (ROE) in Asia(20.38%),
followed by Indonesia (20.19%), New Zealand(18.83%), Japan (-6.42%)
Average gross bad loans as share of total loans India(8.18%),
Philippines (15.05%), Thailand (13.08%), China(11.80%) and Malaysia
(9.73%) Cost to Income Ratio in India at 44.56% is in line with
thebest regulated Asian countries like Singapore (44.15%),Taiwan
(42.61%) and Hong Kong (40.05%) May 5, 2009 US India Business
Summit, 2006 12 13. Financial Sector Reforms Going Ahead
RequirementsFulfillments Banking Regulations Deregulated Interest
rate Greater freedom to banks Significant steps towards Full
capital Account Convertibility Credit & Recovery SARFAESI Act
2002 Debt Recovery Tribunal (DRT) Payment Systems Real Time Gross
Settlements(RTGS) Electronic Clearing System (ECS) Electronic Fund
Transfer (EFT) Cheque Truncation - in the pipeline Communications
& Infrastructure Internet Banking, E-Banking, On-line Tax
Payment / Utility Payments, ATM, Mobile Banking May 5, 2009US India
Business Summit, 2006 13 14. Significant Steps for Improvement
AreaStatus Capital Norms- Min. Capital @ 9% as against 8% by BIS-
Indian Banks are ahead in Basel II readiness implementation
road-map targets March2009- Min. Capital requirement for entry set
@ Rs.3 bn. for all banks in private sector Credit Information -
Credit Information Bureau of India Ltd- List of defaulters on RBI
website Financial Track record- No financial crisis escaped
contagioneffect of South East Asian meltdown Other Regulatory
Initiatives- Strong Regulatory Practice & Prudence inplace for
Managing Affluence- Regulatory provisions to bring NBFCs &UCBs
under uniform prudential normsMay 5, 2009US India Business Summit,
2006 14 15. Indian Banks are on a high growth track1. Overall
banking sector is growing by 18%2. Retail Sector (CAGR 5 years)-
Housing Loan : 50.%- Consumer Durables : 16%- Credit Card: 45%- Two
Wheeler Loan : 31%- Car Loans: 26%- Other Personal Loans : 38% More
than 25% of the Bank Loan Assets are in Retail sectorensuring high
returns - likely to cross Rs. 5700 bn by 2010 May 5, 2009US India
Business Summit, 200615 16. Indian Banks are on a high growth track
Online Banking in India . . . Growth of e-Commerce Transactions
2002-03 2003-04 2004-05 2005-06 2006-07 Estimated 4.6* million
Indian Internet users are Banking Online today2500 Indians paying
bills online is expected to2000increase from the current 0.3
million in 230015002005-06 to 1.8 million by 2007-2008.1180 Rs. CR
E-commerce transactions will cross the Rs1000 5702000 crore mark
(2006-2007) which 500 255 130translates into an increase of over
300%0from financial year 2004-05. May 5, 2009 US India Business
Summit, 200616 17. Doing Business in India Is there any Untapped
Potential in Indian Financial Market ? What is the Big Picture ?
May 5, 2009 US India Business Summit, 2006 17 18. The Big Picture
Consumption boom in India Consumer Loans /Mortgages / GDP(%)
GDP(%)40603758355030 India India2540 Thailand36 Thailand20
Malaysia3017 Malaysia26 Taiwan15 13 Taiwan20 Korea10 9
Korea13541080 0 IndiaThailandMalaysia
TaiwanKoreaIndiaThailandMalaysia Taiwan Korea Other Retail Loans /
GDP Credit Cards / GDP (%)(%) 140 121.9 4541 120 40 100 India
3582.4India 30 Thailand 80Thailand 25 Malaysia 60 Malaysia 20 17
Taiwan16Taiwan 4015 KoreaKorea8 10 2049.852.8 0.400
IndiaThailandMalaysiaTaiwan KoreaIndiaThailand Malaysia Taiw an
KoreaIneach of the US India Business Summit, 2006area, huge
untapped potential left May 5, 2009 18 19. The Big Picture Mutual
Funds Global Perspective Mutual Funds as a % of GDP 100 879080
72706050Global Investment Fund Asset Pool403030 23 21
16002013711396 14006 510 12000BrazilUK US$bn IndiaKoreaUSA Japan
Australia 1000 800 635 600 468 493 512 399 344 400 274 177 20077
44111 0 LuxembourgPhilippines IrelandUK KoreaIndia Hong
KongAustralia SingaporeZealandItaly JapanTaiwanFrance NewLow
Penetration Indian industry still in early stages May 5, 2009US
India Business Summit, 200619Source : CLSA Asia Pacific Markets 20.
The Big Picture Insurance Penetration Global LandscapeLife premium/
GDP (%) Insurance density (US$ premiums per 108.9 8.329 7.27
capita)87.08764.1453.6 3.514 2.53Country LifeNon Life31.782
0.821UK3287 13110 IndonesiaAustraliaMalasiya France Korea India
ChinaJapan South UKUSJapan 2954 790France2474 1093US1753
2122Australia 1366 1203Non Life premium/ GDP (%)South Korea 1211
495Malasiya188 95 65.01India18 4.5 5 3.55 4China13 163.13 3.092.98
32.22Indonesia10 10 1.82 20.92 0.70.61 1 0 Indonesia Malasiya
AustraliaJapanFranceSouthKoreaIndia ChinaUSUK Low Penetration A
large potential still untapped May 5, 2009US India Business Summit,
2006 20 Source : Swiss Re Report 2005 21. The Big Picture Growth of
Card Spending in India . . .Growth of Credit and Debit Cards in
India Increasing trend of Plastic Spend High Technology Banking
Products87 Need for value added services on card6products57.3
NUMBER OF4 CARDS IN CrGrowth of ATMs in India3 4.9 3000022.81
25000020042005 20062000015000 Larger Number of Access Points for No
of ATMs Customers 10000 Convenience to customer is the key 5000
Shared network is the future0 2000 2001 2002 2003 2004 2005 2006May
5, 2009 US India Business Summit, 2006 21 22. Wealth Management
& Private Banking New Growth Opportunities India - one of 10
fastest-growing population of HNWIs globally There are at least 23
Indian citizens amongst the richest people on theplanet Non
Resident Indians can invest in all Indian Asset Classes No. of
HNWIs in India 100,000 (19.3% growth in 2005) Salary increases in
India 13.9% is the highest in the world Increasing Investment
avenues Art, Realty Funds, Commodities Penetration level of wealth
management services in India - 10% incomparison to European markets
(60-90%) The number of companies listed on the Bombay Stock
Exchange, at more than 6,000, is second only to NYSE. Each year
2,500 tonnes of gold is mined (fifth of the world's gold output.)
and 3,500 tonnes is consumed, of which 1,000 tonnes is consumed in
India alone. May 5, 2009 US India Business Summit, 2006 22 23. The
Big Picture India is fast emerging as the Back Office of the World
& the Global Knowledge Hub 100 Global Companies outsource from
India Top Global Banks are present in India Largest talent pool
World class educational / professional institutions Increasing
Trade activities Cost of operations low May 5, 2009 US India
Business Summit, 200623 24. The Story Continues Savings Rate @ 29%
is low Offers high potential from an increasingly affluent
community Less than 40% of Indian household has a bank account
Bulging Middle Class likely to exceed 300 mn Only 2% of the Indian
population have insurance cover Less than 1% of the population is
actively participating in the Stock market Number of high net worth
households (> Rs. 500,000) is likely to grow from 200,000 to
400,000 by 2010 Consumer Finance stands at about 2% to 3% of GDP as
compared to 25% in European market Real Estate Market is projected
to touch USD 50 bn by 2008 SME Sector is catching up fast creating
huge prospect of growth May 5, 2009US India Business Summit, 200624
25. Challenges Ahead. Capital Requirements to compete with Foreign
banks in the post 2009 phase Financial Inclusion to remove
imbalances in economic growth Banking Sector Consolidation for
improving competitiveness need for a clear road-map for Managed
Consolidation HR Challenges Changing working conditions,
re-skilling, compensation etc. Coping with the massive technology
adoption programme change management from employees as well as
customers perspectives May 5, 2009 US India Business Summit, 200625
26. Challenges Ahead. High intermediation costs Low Productivity
Better Corporate Governance higher level of accountability
Improvement in productivity and efficiency in line withadvanced
markets Transformation from Plain Vanilla banking to
multi-specialistbanking May 5, 2009US India Business Summit, 200626
27. Thank YouMay 5, 2009 US India Business Summit, 2006 27
