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US – India Business Summit, 2006April 12, 2023 1
Doing Business in India
The Big PictureA Banker’s Perspective
US – India Business Summit
November 29, 2006
Dr. Anil K KhandelwalChairman & Managing Director
Bank of Baroda
US – India Business Summit, 2006April 12, 2023 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 a hub 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
US – India Business Summit, 2006April 12, 2023 3
“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
Indian Economy – A Snapshot
US – India Business Summit, 2006April 12, 2023 4
Improved Ranking on Business Front
World Bank – IFC Report on Doing Business in India
for 2007 has given a higher rank to India compared
to 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 Court’s decision has made enforcing collateral
simpler – easing access to credit
- Reforms to Stock Exchange Regulations have toughened
investor protection
US – India Business Summit, 2006April 12, 2023 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
US – India Business Summit, 2006April 12, 2023 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
US – India Business Summit, 2006April 12, 2023 7
The Indian Financial Sector Banking sector entering newer areas like wealth management, private
banking, doorstep banking, electronic banking, credit cards, investment
advisory 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 and
weave a new bond of relationship
Financial products like mutual funds, life policies, non-life policies competing
with 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 and
prudential accounting standards in place
Indian banking entering the phase of consolidation (2nd Phase of Reform) – on
way to acquire global size
US – India Business Summit, 2006April 12, 2023 8
Robust & Resilient Banking Sector A free & open banking sector where most businesses are now covered at the
market-determined rates
Full banking license system
Highly Stable Sector despite a series of Exogenous Shocks like the Asian
Crisis, Sanctions due to Nuclear Explosions, Record High Oil Prices and
Large Corrections in Stock Markets
Significant improvement in the Asset Quality: Net NPAs (%) have decreased
from 8.1% at end-March 1997 to 2.0% at end-March 2006 despite tightening of
prudential norms
Capital Adequacy Ratio (%) of the banking sector has increased from 10.4% at
end-March 1997 to 12.8% at end-March 2006
Operating Expenses of SCBs have declined from 2.1% of Total Assets in 1992
to 1.8% in 2005 indicative of improved efficiency
Intermediation costs of SCBs have declined from 2.9% in 1995-96 to 2.1% in
2005-06
US – India Business Summit, 2006April 12, 2023 9
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 in
1995 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, the
Progressive & the Opulent – with equal aplomb
Indian Banks – in good health…
US – India Business Summit, 2006April 12, 2023 10
Indian Banks – in good health…
About 70000 strong branch network – More
than 60% presence in Rural areas
Consistent growth in profitability – Spread is
getting healthier – from 3.1% in 2004-05 to
3.2% in 2005-06
NPL Ratios compare favourably with global
trends
Consistently out-performing stock indices –
Total Return to Shareholders continues to be
attractive
• PSU Banks : 61.2%
• India Banking : 51.3%
• Old Private : 40.0%
• New Private : 33.9%
TRS Apr 01 – Apr 05
• PSBs : 72%
• Pr.Bks : 19%
• Fgn. Bks.: 7%
• Others include UCBs,
RRBs, LABs & NBFCs
• Spread : 3.2%
• CAR : 12.0%
• ROA : 1.0%+
• Gross NPA : 3.34%
• Net NPA : 2.00%
US – India Business Summit, 2006April 12, 2023 11
Banks – Major Financiers of Growth
India has one of the strongest financial sector with low systemic
risk
Upturn in economic activity is mirrored in the sustained growth in
“Demand for Bank Credit”
Bank credit has increased sharply from 30% of GDP at end-March
2000 to 48% at end-March 2006
Non-food credit by SCBs increased by an average of 26.1% between
2002-2006 versus its long-term average of 17.8% from 1970 to 2006
Deployment of credit is quite broad-based with increasing flows
going to infrastructure , SMEs, agriculture and retail sector
(especially residential mortgages) during the past three years
US – India Business Summit, 2006April 12, 2023 12
Indian Banks in the Best of the League of Asian Peers
According to Moody’s 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 the
best regulated Asian countries like Singapore (44.15%),
Taiwan (42.61%) and Hong Kong (40.05%)
US – India Business Summit, 2006April 12, 2023 13
Banking Regulations
Credit & Recovery
Payment Systems
Communications &
Infrastructure
• Deregulated Interest rate
• Greater freedom to banks
• Significant steps towards Full capital
• Account Convertibility
• SARFAESI Act 2002
• Debt Recovery Tribunal (DRT)
• Real Time Gross Settlements(RTGS)
• Electronic Clearing System (ECS)
• Electronic Fund Transfer (EFT)
• Cheque Truncation - in the pipeline
• Internet Banking, E-Banking, On-line
• Tax Payment / Utility Payments,
• ATM, Mobile Banking
Requirements Fulfillments
Financial Sector Reforms – Going Ahead
US – India Business Summit, 2006April 12, 2023 14
Capital Norms
Credit Information
Financial Track record
Other Regulatory Initiatives
- Min. Capital @ 9% as against 8% by BIS
- Indian Banks are ahead in Basel II readiness
– implementation road-map targets March
2009
- Min. Capital requirement for entry set @ Rs.
3 bn. for all banks in private sector
- Credit Information Bureau of India Ltd
- List of defaulters on RBI website
- No financial crisis – escaped contagion
effect of South East Asian meltdown
- Strong Regulatory Practice & Prudence in
place for “Managing Affluence”
- Regulatory provisions to bring NBFCs &
UCBs under uniform prudential norms
Area Status
Significant Steps for Improvement…
US – India Business Summit, 2006April 12, 2023 15
1. 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%
Indian Banks are on a high growth track…
More than 25% of the Bank Loan Assets are in Retail sector
ensuring high returns - likely to cross Rs. 5700 bn by 2010
US – India Business Summit, 2006April 12, 2023 16
Online Banking in India . . .Growth of e-Commerce Transactions
130255
570
11802300
0
500
1000
1500
2000
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Rs. C
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2002-03 2003-04 2004-05 2005-06 2006-07 • Estimated 4.6* million Indian Internet users
are Banking Online today
• Indians paying bills online is expected to
increase from the current 0.3 million in
2005-06 to 1.8 million by 2007-2008.
• E-commerce transactions will cross the Rs
2000 crore mark (2006-2007) which
translates into an increase of over 300%
from financial year 2004-05.
Indian Banks are on a high growth track…
US – India Business Summit, 2006April 12, 2023 17
Is there any Untapped Potential in Indian
Financial Market ?
What is the ‘Big Picture’ ?
Doing Business in India …
US – India Business Summit, 2006April 12, 2023 18
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Consumer Loans / GDP(%) Mortgages / GDP(%)
Credit Cards / GDP (%) Other Retail Loans / GDP (%)
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Consumption boom in India
In each of the area, huge untapped potential left
The Big Picture…
US – India Business Summit, 2006April 12, 2023 19
Mutual Funds – Global PerspectiveMutual Funds as a % of GDP
Global Investment Fund Asset Pool
87
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Low Penetration – Indian industry still in early stages
Source : CLSA Asia Pacific Markets
The Big Picture…
US – India Business Summit, 2006April 12, 2023 20
Life premium/ GDP (%)
Source : Swiss Re Report 2005
Insurance Penetration – Global Landscape
Non Life premium/ GDP (%)
Insurance density (US$ premiums per capita)
Low Penetration – A large potential still untapped
8.98.32
7.27 7.08
4.143.6 3.51
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Country Life Non Life
UK 3287 1311
Japan 2954 790
France 2474 1093
US 1753 2122
Australia 1366 1203
South Korea 1211 495
Malasiya 188 95
India 18 4.5
China 13 16
Indonesia 10 10
The Big Picture…
US – India Business Summit, 2006April 12, 2023 21
Growth of Card Spending in India . . .
0
5000
10000
15000
20000
25000
30000
2000 2001 2002 2003 2004 2005 2006
No of ATMs
Growth of ATMs in India
Increasing trend of Plastic Spend
High Technology Banking Products
Need for value added services on card products
Larger Number of Access Points for Customers
Convenience to customer is the key
Shared network is the future
Growth of Credit and Debit Cards in India
2.8
4.9
7.3
0
1
2
3
4
5
6
7
8
NUMBER OF CARDS IN Cr
2004 2005 2006
The Big Picture…
US – India Business Summit, 2006April 12, 2023 22
India - one of 10 fastest-growing population of HNWIs globally
There are at least 23 Indian citizens amongst the richest people on the
planet
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% in
comparison 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.
Wealth Management & Private Banking – New Growth Opportunities…
US – India Business Summit, 2006April 12, 2023 23
India is fast emerging as the “Back Office” of
the World & the “Global Knowledge Hub”
The Big Picture…
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
US – India Business Summit, 2006April 12, 2023 24
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
The Story Continues…
US – India Business Summit, 2006April 12, 2023 25
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
Challenges Ahead….
US – India Business Summit, 2006April 12, 2023 26
High intermediation costs
Low Productivity
Better Corporate Governance – higher level of accountability
Improvement in productivity and efficiency in line with
advanced markets
Transformation from Plain Vanilla banking’ to “multi-specialist”
banking
Challenges Ahead….
US – India Business Summit, 2006April 12, 2023 27
Thank You