The Indian Economy and The Financial Sector Opportunity July 12, 2005
Jan 29, 2016
The Indian Economy and The Financial Sector Opportunity
July 12, 2005
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Agenda
Current Scenario
Drivers of Growth
Challenges
Summary
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India : Overview
Country
Population1,055m
GDP (03-04) $ 579 BnLife insurance market
* Insurance Premiums as % of GDP** April 2003 – March 2004
Country
3 year CAGR of GDP 6.5%
Inflation 5%
Savings rate (03-04) 25%
Insurance penetration* 2.3%
MF Penetration 0.5%
Characteristics
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Size and Distribution of Savings
Sources: RBI
Share of Financial Savings
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
19
93
-94
19
95
-96
19
97
-98
19
99
-00
20
01
-02
Mutual Fund Life Insurance Government Small Savings
Currency & Deposit PF & Govt Pension
0
100,000
200,000
300,000
400,000
500,000
600,000
1993
-94
1995
-96
1997
-98
1999
-00
2001
-02
5 Year 11.6%
HH Savings (Rs Mn)
Financial Savings
Gross Physical Savings5 Year 20.2%
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Opportunities in life insurance
Life insurance premium as % of GDP
10.7%
8.9% 8.7%
5.7%
4.4%3.4%
2.3% 2.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
UK J apan Korea Austrlia US Malaysia India China
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Opportunities in non-life insurance
Non-life insurance premium as % of GDP
4.6%
3.5% 3.4% 3.4%
2.2%1.8%
0.9%0.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
US UK Australia Korea J apan Malaysia China India
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Retail credit opportunity…Consumer loans / GDP (%)
18
33
52
8
55
0
10
20
30
40
50
60
Korea Taiwan Malaysia Thailand India
Net retail NPA levels are low at about 1.6% for the Indian banking sector as a whole and even lower for many of the leading players
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Opportunities in asset management
AUM as % of GDP
87%
72%
30%23% 21%
6%
0%
20%
40%
60%
80%
100%
Australia US Brazil UK Korea India
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Opportunities in Credit Card
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Agenda
Current Scenario
Drivers of Growth
Challenges
Summary
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Twin Growth Drivers
Demographic Transition
Economic Surge
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Lowering Dependency Ratio …
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…leading to growth in Household Financial Savings
Reducing dependency could trigger a self-reinforcing savings growth dynamic in the next decade
• Expected demographic trends suggest, in light of experience elsewhere, in the next decade India’s national savings could rise to 30% or more
• Bulk of the savings contributed by Households
• Decline in share of financial savings a negative – however expected to increase with development of financial system and higher awareness
SG-2005-0042 14Source:Based on NCAER & Govt Of India estimates
CAGR (%)
141123
4872
15.727.8
0
30
60
90
120
150
180
210
'03-'04 '09-'10(E)
No. of HH (M)
<70k
70k-140k
>140k
-2.31%
10.1%
Income
Rising Income levels Increases Target Market
7.06%
Income range based on 1998-1999 prices
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0
2
4
6
8
10
12
0 1 2 31,000 10,000 100,000100
(1) PPP adjusted GDP per capita higher by a factor of ~5-6; lower income categories not shownSource: Swiss Re; NCAER
Insurance premium as % GDP
GDP per capita in USD (log scale)
INDIA
... Insurance Is Poised For Growth
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Twin Growth Drivers
Demographic Transition
Economic Surge
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Services sector driving momentum• Established leadership in information technology • Successful forays across knowledge-based sectors
Renewed industrial growth• Operational efficiency and quality focus• Supported by financial restructuring
Progress in infrastructure development• Significant achievements in telecom and roads• Focus on power sector and urban rejuvenation
Drivers of resurgence…
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Services sector driving momentum
Leveraging rich pool of human capital • Quality educational institutions • Large English speaking population
Globally-positioned IT sector• Software exports of US$ 12.2 bn in FY2004 and US$ 7.1 bn in
H1-2005
International services hub• Commenced with IT-enabled services : voice & data • Expanded to all knowledge sectors: pharmaceuticals,
biotechnology, engineering design
Growth in financial services, travel & hospitality
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Impact of the resurgence
Sectoral share of GDP(%)
Sector
22.1Agriculture
21.7Industry
56.2Services
Growth FY2004(%)
9.6
6.6
9.1
GDP 8.5
Source: NAS
One of the fastest growing economies in the world with 7.0% growth rate in H1-2005
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Renewed industrial growth
After a prolonged period of restructuring and repositioning growing competitiveness• Increasing deployment of technology• Deleveraging and organic capital generation• Constantly improving quality standards
Emergence of Indian multinationals• Setting up production capacities overseas• Setting up international distribution• Consolidating supply chain
India’s emergence as a global manufacturing hub –Second-most favoured destination for FDI in manufacturing
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Progress in infrastructure development
Construction of Golden Quadrilateral and North-South, East-West corridors
13,000 km long - world’s largest single highway project
Boosting demand for steel, cement, commercial vehicles
Construction of Golden Quadrilateral and North-South, East-West corridors
13,000 km long - world’s largest single highway project
Boosting demand for steel, cement, commercial vehicles
Cellular subscriber base of 49 million, growing at over 150%
Positive impact on efficiency of firms & services exports
Cellular subscriber base of 49 million, growing at over 150%
Positive impact on efficiency of firms & services exports
Roads
Telecom
…missteps in power and urban infrastructure being addressed
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India has just started on the journey
S-curve for income growth in Asia
0
5,000
10,000
15,000
20,000
25,000
0 10 20 30 40 50 60
Years from start of reforms
GD
P p
er
cap
ita i
n 2
003 (
US
$)
Source: Morgan Stanley
India
Philippines
China
Thailand
Malaysia
KoreaTaiwan
Singapor
Hong Kong
J apan
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Agenda
Current Scenario
Drivers of Growth
Challenges
Summary
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Challenges of Intermediation in India
Size of the country and dispersed affluent population
Lack of Data – specially the area of Health
Attracting the Talent Pool
Evolving Regulatory Environment
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Size & Dispersion of Population
Area : 2973190 sq. Kms.
More than 70% of population in rural areas• More than a third of Mass affluent & rich households in rural areas
5161 towns & cities comprise urban India
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Challenges from lack of Data
No single customer identification number like social security number
Single Mortality table used• No cuts available by geography or customer segment• Very scarce data for annuitants
Health records not available• Health incidence data or morbidity tables not developed
• No consolidated medical individual history available• No standard definition of conditions & surgeries
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Attracting the Talent Pool
Increasing attrition levels• Poaching within & across industries• Attrition at frontline sales level around 20%
Payhikes• Salary increases grossly out pace inflation • Projected increases to continue at a minimum 10-12%• Premium for “critical skills” with a sudden advent of new industries e.g. Insurance & ITES
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Evolving Regulatory Environment
Multiple Regulators
• Boundaries in RFS becoming fuzzier
Pension reforms on the anvil
Tax rules in flux• Creates distortions in incentives to invest in various financial instruments
Regulations still evolving as regulators gain maturity
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Agenda
Current Scenario
Drivers of Growth
Challenges
Summary
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Summary
Strong growth prospects for the Indian Economy
Demographic transition should lead to a positive savings growth spiral – fuelling growth of financial savings
Changing structure of savings could lead to increase in allocation to Insurance & Pensions
Need to manage unique intermediation challenges of operating in India
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Thank you