RESEARCH

Indian Financial Distribution Industry at the cusp: Vision 2020 March 31,2015

A FIAI-CRISIL report on Indian Financial Distribution Industry

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Preface

At 21%, India’s household savings rate is one of the highest in the world. However, unlike in many developed nations, a significant portion of this money is channelled into non-financial assets -- primarily real estate and gold.

Since liberalisation in the early 1990s, India’s financial market has grown by leaps and bounds but the wealth management industry has been confined to a very small set of mostly affluent investors. Not a conducive situation to wealth creation in a country where over half the population is below the age of 30.

At the heart of this issue is the financial distribution business, whose penetration and development has been inhibited by lack of financial awareness, operational inefficiencies and lack of incentives for investors and distributors.

This report details the financial distribution industry and the outlook for it based on secondary research and primary interactions with a large number of stakeholders. It draws up a picture of the industry taking into account its size, structure, penetration levels, geographical reach and trend analysis. It also considers various macroeconomic factors, technology trends, investor preferences and regulatory developments to identify the growth drivers/ opportunities and challenges/ obstacles.

We are convinced policymakers, stakeholders and industry watchers alike will find this a handy document for keeps.

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Table of contents

Executive summary .................................................................................................................................. 6High potential .............................................................................................................................................. 6Key drivers .................................................................................................................................................. 7

Financial distribution industry at a glance ............................................................................................. 8

What makes financial distribution industry so important ................................................................... 11

A bird’s-eye view of financial distribution industry in India ................................................................ 15Distribution industry structure ................................................................................................................... 16Distribution landscape - Mutual funds .......................................................................................................17Distribution landscape - Insurance ........................................................................................................... 20

World apart: Global distribution scene versus Indian ........................................................................ 25Small mercy: retirement funds catching up ............................................................................................... 29

Financial distribution on cusp of growth ............................................................................................. 33Mutual funds ............................................................................................................................................. 34Insurance .................................................................................................................................................. 36

What stands in the way .......................................................................................................................... 39

What can drive growth ........................................................................................................................... 43

Annexures ............................................................................................................................................... 50

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Executive summary

The financial distribution industry in India is expected to see tremendous growth in the coming decade as a galloping economy boosts employment and raises incomes, and the much-vaunted demographic dividend drives investments into the capital markets. India is expected to log high GDP growth, which will push up household incomes and savings significantly. This will catalyse household investments of a ‘young’ nation where the number of households having annual income in excess of Rs 5 lakh is estimated to rise from around 6.24 crore in 2014 to around 12.14 crore by 2020.

We believe the next six years can very well spell boom time for financial products, specifically mutual funds and insurance plans, given that the economy is shifting to a higher-growth path. And as average household income rises, money managers and financial planners will have their task cut out: to steer the teeming millions towards financial investments and better potential returns for their hard-earned monies.

India’s financial distribution industry has a large footprint, accounting for around Rs. 7.92 lakh crore ($126.63 billion) of assets under management of mutual funds (MFs) as on March 2015 and Rs. 3.57 lakh crore ($57.08 billion) of insurance premium collected in 2013-14. Yet, less than 5% of India’s household financial savings of Rs. 8.19 lakh crore ($130.95 billion) was invested in the capital markets in 2013-14. There are three primary reasons for the abysmal level of interest: lack of awareness about financial products, market volatility, and a conservative mindset arising from low per-capita income. We believe it is in the nation’s interest that we have long-term policies for channelling household savings into the capital markets.

Indeed, financial intermediaries and distributors will have a seminal role to play in fully realising that enormous potential. Today, the average working person, because of inadequate awareness and limited knowledge of investments, requires guidance and handholding. While the proliferation of internet helps many find answers to their investment questions, a good lot require the personal touch -- of a friend, philosopher and guide, as it were -- to wade through the complex world of investments and arrive at the optimal choice.

Developing a vast pool of financial advisors and distributors is thus an imperative. This also helps in employment creation and retail penetration, and thereby benefits the economy at large. And since the industry requires specific skill sets, it is equally important to put in place initiatives that will foster such human resource development. Existing distributors are expected to resort to digital distribution to grow the industry significantly and at the same time reduce costs.

Implementation of the Securities Exchange Board of India's move to bring in a self-regulatory organisation (SRO) for mutual fund distributors would aid the industry. Additionally, creation of a single SRO for the entire distribution industry will help monitor and regulate financial intermediaries. This body could establish best practices and guidelines for its members, while keeping the interests of investors in mind, helping drive financial penetration further and spreading investor awareness. However, recent changes in the mutual fund industry including the recently imposed service tax on MF distributor commissions, and distributor commission capping can be a major dampener for the MF and the distribution industry unless resolved soon.

High potential

Within the financial products universe, mutual funds have the potential to grow the fastest as investors move away from traditional products and explore market-linked ones for long-term wealth creation. The mutual fund industry has potential to grow at 23% annualised over the next six years to an asset size of Rs 37 lakh crore ($591.57 billion). This is likely to be supported by distribution channels, which are estimated to grow at around the same pace. The pace will be aided by an increase in penetration in order to meet the financial aspirations of the rising middle-class as well as capital market performance. Banks, both private and PSUs, are in a sweet spot to capture the large middle class population across geographies. Independent financial advisors (IFAs) and national distributors (NDs) through technology-enabled sub-broker models are expected to expand their reach and presence in the B-15 cities (non-metros) to capture the biggest chunk of this growth opportunity.

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In the insurance industry, rise in penetration will be fuelled by increase in population, particularly the working age population, rising income levels, as well as other socio-economic factors such improvement in lifestyle, higher medical costs and nuclear family system. We estimate that although the Life Insurance Corporation of India (LIC) will continue to be far ahead of the private sector in terms of market share, the private sector will grow faster. Traditional products would continue to reign due to pricing disparity. Premium in life insurance is projected to more than double to nearly Rs. 9 lakh crore ($143.58 billion) by 2020 from Rs. 3.14 lakh crore ($50.20 billion) in 2014, while premium in the non-life insurance industry is presaged growing two-and-a-half times from Rs. 70,610 crore ($11.35 billion) in 2014 to nearly Rs. 1.8 lakh crore ($29.26 billion) by 2020.

As alternative investment funds (AIFs) and portfolio management services (PMS) are niche products, mainly targeting the high net-worth individual (HNI) and ultra-high net-worth individual (UHNI) segments, they form a small part of the overall product pie. India being a developing economy is yet to see significant investment flow in this category. This segment is likely to rise among private sector banks, boutique wealth management firms and national distributors due to the increase in HNI base at the end of 2020. However, this figure may likely be marginal compared with other products.

Key drivers

Hands on the deck: There has been a decline in the number of active distributors in recent years for both mutual funds and insurance. Retaining distributors and retail agents becomes a huge challenge for insurers in particular, considering they invest a lot on training. High level of churn affects long-term plans and costs of companies. With fewer players, the reach across different income and geographical segments is limited and penetration that much more difficult. We believe having players catering to multiple client segments will improve the economics of business. Skill enhancement and training would be imperative to expand the network of distributors. As such, the number of distributors should potentially grow by 3 to 5 times by 2020 to meet the industry potential.

Awareness: Low financial literacy levels and lack of awareness, unless addressed well, will inhibit the industry’s growth. Financial products continue to be ‘push’ products in India and regular connect plays a huge role in fostering trust, retaining investors and attracting more investment. Asset allocation and financial planning help in goal planning and meeting various objectives. However, till such time investors remain unaware of such concepts, money will continue to flow into gold and real estate. Development of new distribution channels, government support through schemes such as the inclusion-driver Jan Dhan Yojana and greater focus on retirement planning through introduction of schemes on the lines of the 401(k) in the US will help the mutual fund industry realise its potential.

Business Viability: Rising employee costs (fixed and variable) and real estate prices also threaten the distribution industry’s growth – particularly the national and regional players. The industry is currently grappling with changes in its business model, such as capping of commission and inclusion of distributors under the service tax regime, which could be a major dampener for the industry. This can affect players who haven’t adopted a scalable model. While automation cuts costs, complex systems can add to costs when business plans are revised.

Technology: As investors become more tech savvy, the pace of integration of newer technologies will also become easier. Recent initiatives to extend financial inclusion through mobile banking and trading and initiatives to enable tablet-based investments are precursors to the great role technology will play in years to come. Appropriate technology can also help reduce transaction costs. A reduction in physical costs (paperwork, labour) enables the distributor to focus on value additions for the client, bring in efficiency of time and enable the distributor to increase volume. In addition, technology can play a major part in compliance of rules and regulations in maintaining up-to-date database in keeping with norms. Thus new-age technology models, with ease of transaction and better reporting, can lead to better results for industry growth by distributors.

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Financial distribution industry at a glance

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What makes Financial Distribution

Industry so important

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A gigantic investor base at hand...

India’s much-vaunted demographic dividend can drive investments into the capital markets as a strongly growing economy boosts employment and raises incomes. India will continue to be a ‘young’ nation where the number of households having annual income in excess of Rs 5 lakh is estimated to rise from around 6.24 crore in 2014 to around 12.14 crore by 2020. With most of the population expected to be in the working age group in the next couple of decades, and as average household incomes rises, there will be a need for money managers/financial planners to direct the retail domestic populace towards investments.

Further, not only is India young, but it also has a high savings rate - among the highest in the world. This, if channelled well, can be a massive boost for the capital markets. In 2012-13, the country’s gross financial savings were Rs. 10.43 lakh crore ($166.76 billion), of which Rs. 7.22 lakh crore ($115.44 billion) was from the household sector – an indication of both the size of its investor population and their ability to invest.

...but few takers for financial assets

A notable feature of the domestic savings rate is the high proportion of physical assets (rising in recent years) compared with financial assets. Financial savings have seen a decline over 2010-13, while savings in physical assets have grown steadily. Gold has been the most favoured asset of the masses in the Indian sub-continent since ancient times, both due to religious and investment factors. The attraction of real estate has increased only in recent times due to the sharp increase in home and land prices.

As the graph below indicates, the contribution to financial savings stood at a third of that in household savings at the end of 2013-14. If this gap has to be narrowed, it is imperative that the performance of the capital markets improve.

The financial market has several fixed income avenues to meet the investment needs of the retail base, including bank and post office deposits, small savings schemes, provident fund schemes and Kisan Vikas Patra, etc. But these instruments often fail to beat inflation, especially over longer terms. This has seen to the emergence and growing popularity of long-term investment avenues such as mutual funds, unit linked insurance plans and National Pension System (NPS) over the past decade. Amongst sophisticated investors, portfolio management services, structured products and equity advisory have also gained prominence.

Source: RBI

Household savings (as % of GDP) Share of financial savings in gross domestic savings (as % of GDP)

23 23.625.2

23.1 22.8 21.9

11.610.1

129.9

7 7.1

0

5

10

15

20

25

30

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Household savings Financial savings

11.6

10.1

12

9.9

7 7.1

11.4

13.5 13.2 13.2

15.814.8

0

2

4

6

8

10

12

14

16

18

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Financial saving (net) Saving in physical assets (gross)

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But the share of household sector savings in the capital markets (shares and debentures, including mutual funds) remains abysmally low (around 2.9% in 2013-14). Deposits form the biggest chunk of financial savings, followed by insurance, and provident and pension funds.

As shown in the chart above, shares and debentures have accounted for an abysmally low share of household savings. The low share of household exposure to the capital markets is because of lack of awareness and conservative mindset for guaranteed products arising from low per capita income. Market volatility, especially after the global financial crisis of 2008, has also dented investor confidence.

On a positive note, the low capital market penetration means there is a huge investor base waiting to be tapped. Barely 5% of India’s households invests in the capital markets today. The question is how to increase this proportion.

Macro-economic stability, rise in income levels and better investor awareness can all help boost participation. And financial intermediaries will have a huge role to play here.

Intermediation key to unlocking full potential

The spread of internet is helping investors find answers to many of their investment queries. However, the average working man, who is either financially unaware or has limited knowledge of investment avenues, requires guidance and ‘handholding’ in navigating the complex world of investments and making the optimal choice.

It is, therefore, in the country’s interest to develop long-term policies to boost employment in the sector. And since the industry requires specific skill sets, it is equally important to put in place initiatives that will foster human resource development, particularly among the youth, in terms of knowledge enhancement and training to attract new talent in the financial services and distribution space.

Moreover, distributors who operate in specific regions can tailor their financial services to cater to the local needs of the population. Banks – with their vast branch network and technological infrastructure – can take advantage of such an opportunity. NDs and IFAs, despite capital investment restrictions, can also boost job creation in the industry by increasing the use of technology in daily operations (e.g., use of online platforms, mobile applications, etc.)

Needless to say, intermediary models currently in the market will multiply as regulatory changes and innovation alter the business landscape.

* of which private corporate, banks, PSU and mutual fundsSource: RBI

Source: RBI

Components of household savings in 2013-14 (in %)

Currency9%

Deposits59%

Shares, debentures*

3%

Life Funds of LIC and private insurance

companies17%

Provident and pension funds

12%

1,37

1

1,06

2

1,11

6

1,01

8

5,24

8

5,44

5

5,90

6

6,90

8

-43

-28 43

0

337

2,09

5

1,95

5

1,80

0

1,94

3

1,41

0

949 1,22

3

1,35

9

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2010-11 2011-12 2012-13 2013-14In

Rs

billi

onCurrencyDepositsShares, debentures*Life Funds of LIC and private insurance companiesProvident and pension funds

Low share of capital markets

14

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A bird’s-eye view of Financial Distribution

Industry In India

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Distribution industry structureThe financial distribution industry in India has grown rapidly since the late 1990s with the emergence of private banks, NDs, technology-enabled brokerage platforms and aggregators who have simplified transactional hassles and introduced new products and services to the mass retail, HNI and UHNI clients.

Banks offer a major network of financial intermediation in the country through their branches. Several private sector banks have created verticals offering wealth management services. NDs and stock brokers also offer services such as execution of trades, account administration, in-depth investment research and custodian services.

Typically, IFAs and insurance agents cater to retail investors. Some of the larger advisors and agents have regionally expanded. In the insurance space, the bancassurance model has evolved in the last couple of decades and worked well with LIC and private insurers.

In recent years, with the advent of superior internet and mobile services, several online portals/ online channels of distribution have come up for catering to the needs of retail investors. The new age models, though, will require a greater proportion of investors to be financially aware and internet savvy.

Distributor Segment

Sub-category Products Geographical reach Target segment

Banks Foreign banks Mutual funds, insurance, structured products, PMS, AIFs

Select locations restricted to Tier I and II cities

UHNI, HNI

Private banks Mutual funds, insurance, structured products, PMS, AIFs

Select locations restricted to Tier I and II cities

UHNI, HNI, mass affluent

PSU banks Mutual funds, insurance

Across the country Retail

NDs NDs – private wealth

Mutual funds, insurance, structured products, PMS, AIFs, corporate deposits

Select locations restricted to Tier I and II cities

HNI, mass affluent

Aggregators Mutual funds, insurance, corporate deposits

Across the country Mass affluent and retail

IFAs Distributor IFAs Mutual funds, Insurance, corporate deposits

The category is spread across the country with individuals having presence in small pockets in cities

Mass affluent and retail

Large/Evolved IFAs & Financial planners

Mutual funds, Insurance, corporate deposits

The category is spread across the country with individuals having presence in small pockets in cities

HNI and mass affluent

Tied agents Insurance The category is spread across the country with individuals having presence in small pockets in cities

Retail

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So far, banks and NDs have dominated the mutual fund industry, together accounting for Rs. 3.48 lakh crore ($55.64 billion) of average AUM, as per AMFI’s Commission Report of 2013-14. Among banks, HDFC Bank, Kotak Mahindra Bank, Citibank, Axis Bank, ICICI Bank, Standard Chartered Bank and HSBC Bank are some of the top players in terms of AUM. Among NDs, SPA Capital Services, JM Financial Services Limited, Axis Capital Limited, NJ India Invest Private Limited and IIFL Wealth Management Limited are among the high rankers.

Notably, NDs, which cater to UHNIs, HNIs, the retail segment (depending on business positioning), as well as corporate clients, have seen the highest gross inflows – at Rs.16.07 lakh crore ($256.94 billion) during 2013-14 as per AMFI. But given intense competition, several NDs which earlier concentrated on transactional revenues have lately shifted focus to wealth management.

While widespread network and aggressive marketing over the years have helped banks and NDs garner immense AUM, the volatile equity market and attractive yields on fixed income products, among other factors, have seen them cede AUM share in the equity mutual fund segment to IFAs, particularly in the retail and HNI segment. Further, corporate investors have adopted the direct channel as a route for investing, mainly for parking money in debt funds.

IFAs, which primarily cater to retail investors, have continued to steadily increase their AUM share - overall as well as in the equity segment. Due to their personal touch, they are able to gain their clients’ trust and guide them through the investing process. With the introduction of web-based platforms and software, IFAs are now finding it more convenient to cater to retail investors.

Distribution landscape - Mutual fundsOverall market share

NDs have the highest market share of 43% though it has been declining in the last three years while the share of IFAs has risen steadily to about 28%. A large portion of corporate clients of NDs have gone to the direct route of investment which has led to lower market share.

Source: CAMSData extrapolated to represent 100% of the industry wherever applicable

Distributor AUM breakup

0%

10%

20%

30%

40%

50%

60%

70%

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

National Distributors Banks IFAs

18

Source: CAMS; excluding other channelsData extrapolated to represent 100% of the industry wherever applicable

Changing trend in market share of equity

Among the distributor segments, recent trend shows that IFAs are gaining momentum in terms of equity AUM share replacing banks. In the last decade, IFA’s share has steadily grown from 13% to 41% to emerge as the top player. Growing presence of retail & HNI segment has helped IFAs in increasing share since 2004. Going forward, IFAs can play a seminal role in reaching out to retail investors across geographies.

Banks, on the other hand, have seen a decline in market share in the retail and HNI segment - from 45% in 2004 to 29% in 2015. NDs, too, have seen a decline in market share from 41% in 2004 to 31% in 2015. Market volatility following the financial crisis in the US, coupled with a reduction in incentives (entry load abolition) by the market regulator, has led to this decline for both post-2008.

Changing trend in market share of debt

In the debt segment, the AUM under NDs has declined significantly from 65% in 2010 to 49% in 2015. With introduction of direct plan in 2012, corporate investors have moved a major portion of their AUM to direct plans,

Equity AUM

Debt AUM

Source: CAMSData extrapolated to represent 100% of the industry wherever applicable

0%

10%

20%

30%

40%

50%

60%

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

National Distributors Banks IFAs

0%

10%

20%

30%

40%

50%

60%

70%

80%

Mar

'04

Mar

'05

Mar

'06

Mar

'07

Mar

'08

Mar

'09

Mar

'10

Mar

'11

Mar

'12

Mar

'13

Mar

'14

Mar

'15

National Distributors Banks IFAs

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Disintermediation

The direct channel accounts for more than 30% of AUM in the mutual fund industry. However, this channel is not popular in the equity class of MFs as it is dominated by retail and HNI investors, who largely prefer to invest through distributors.

The direct channel is more popular among corporate and institutional investors, who, in turn, mainly invest in debt-based mutual funds. This is clear from the fact that equity AUM through the direct channel is less than 10% of the total equity AUM, whereas in liquid and FMPs, more than 50% of AUM is through the direct channel of distribution.

Revenue from mutual fund distribution

Revenue from mutual fund distribution has increased steadily over the last few years. As per AMFI disclosed data, the revenue earned reported for 208 players was Rs 1,566 crore ($250.38 mn) in 2010-11, has risen to Rs 2,581 crore ($412.66 mn) in 2013-14 as reported for 329 players. For the financial year 2014-15, total revenue of the industry is estimated at around Rs. 5,000 crore1 ($799.42 mn). Of the total estimated revenue, IFAs have the highest share of 37%, followed by NDs and banks at 35% and 28%, respectively.

Source: AMFI

1 Industry estimates

Mutual Fund Distribution Commission (Rs. Crore)

1,566 1,703

2,2112,581

0

500

1,000

1,500

2,000

2,500

3,000

2010-11 2011-12 2012-13 2013-14

20

*includes bancassurance

New business premium from Life (Individual and Group)

From the perspective of distribution channels, there has been a steady decline in the market share of individual agents, with a simultaneous increase in premium income through bancassurance. The market share of individual agents has declined from 83% in 2008-09 to 78% in 2013-14. On the other hand, premium share of banks has increased from 11% in 2008-09, and risen to 18% in 2013-14.

Source: Insurance Regulatory and Development Authority or IRDA; inclusive of individual and group life insurance

Break-up of total new business premium income (inclusive of LIC)

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Individual agents 83% 82% 80% 76% 77% 78%

Banks (bancassurance) 11% 11% 15% 18% 19% 18%

Corporate agents- others 5% 5% 4% 3% 3% 2%

Brokers 1% 2% 2% 2% 2% 2%

Distribution landscape - Insurance

Insurance intermediaries

Intermediaries in the insurance industry can be broadly classified by individual and corporate agents. As of March 2014, the industry had 21.88 lakh individual agents and 689 corporate agents.

Intermediaries - channel-wise

Individial agents

(21.88 lakh)

Corporate agents*

(689)Brokers

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As shown in the above chart, individual life insurance policies continue to be dominated by individual agents, followed by banks.

Direct channel has become the preferred mode in group policies. In recent years, there is an advent of online portals providing information and comparison on insurance products and online distribution channels offering cheaper insurance to individuals. These alternate channels will, however, require the financially aware and internet savvy investor base to pick up.

New business premium from Life (Individual and Group) – Private sector (Ex-LIC)

Banks account for a significant part of the new business premium in life insurance. Their share has increased from 25% in 2008-09 to 50% in 2013-14.

Source: IRDA; inclusive of individual and group life insurance Source: IRDA* Any entity other than banks but licensed as corporate agents

65.08% 68.84% 71.85% 71.36% 75.47%

34.92% 31.16% 28.15% 28.64% 24.53%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2009-10 2010-11 2011-12 2012-13 2013-14

LIC Private sector

Market share of Life insurers (based on first year premium)

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

2009-10 2010-11 2011-12 2012-13 2013-14Individual Banks Others* Brokers

Source: IRDA; inclusive of individual and group life insurance

61%55%

48%40% 38% 38%

25%29%

37%46% 49% 50%

12% 12% 10% 9% 7% 6%

3% 4% 6% 6% 6% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Individual agents Banks Corporate agents- Others Brokers

Individual Insurance (New business premium in %)

Private Sector- Life Insurance (New business premium income)

22

The share of individual agents has declined significantly, from 61% in 2008-09 to 38% in 2013-14. The share of corporate agents under private sector insurance has also fallen from 12% in 2008-09 to 6% in 2013-14.

Decline in agents

There has been a decline in the number of agents. The fall has been drastic in case of corporate agents for private insurers since 2010 when IRDA tightened the norms for corporate agents.

Premium per policy

The average premium per policy has risen for corporate agents in both LIC (doubled from Rs. 10,634 in 2009 to Rs. 24,123 in 2013) and private insurance (from Rs. 23,900 in 2009 to Rs. 33,562 in 2013). For individual agents, on the other hand, the per policy premium has stagnated in case of LIC (Rs. 11,227 in 2009 compared with Rs. 11,143 in 2013) and shot up significantly in case of private insurers (up 28% from Rs. 18,977 in 2009 to Rs. 24,457 in 2013).

Source: IRDA

Life Insurers- Individual and corporate agents

2,091

2,420

1,870

642532 540

415510

295240 207 149

0

500

1,000

1,500

2,000

2,500

3,000

0

2,00,000

4,00,000

6,00,000

8,00,000

10,00,000

12,00,000

14,00,000

16,00,000

18,00,000

2009 2010 2011 2012 2013 2014

IA - private IA - LIC CA - private CA - LIC

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23

2IRDA Annual Report 2013-14

Source: IRDA

Source: IRDA

Motor insurance

The motor insurance segment has been dominated by individual agents for quite some time, leaving others far behind in terms of market share.

Health insurance

The health insurance segment in the distribution industry is primarily driven by individual agents.The health insurance premium tally has risen steadily over the past few years.

Currently, a major part of the population is inadequately insured, as indicated by the fact that non-life insurance penetration is just 0.8% of GDP2 .The number of people covered under health insurance stood at 21.62 crore in 2014 which leaves vast majority of population without any cover.

Average per policy premium for individual and corporate agents (in Rs)

18,977 23,027 27,002 23,912 24,457

11,227 12,940 14,159 11,698 11,143

23,90021,523

30,10932,222 33,56210,634 14,676

18,35020,280

24,123

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2009 2010 2011 2012 2013

IA - private IA - LIC CA - private CA - LIC

Motor insurance (premium in Rs. crore) 2009-10 2010-11 2011-12 2012-13Individual agents 7,221 7,557 12,138 14,459Others 628 115 615 1,064Banks 2,096 971 1,007 1,342Brokers 1,477 2,790 2,964 6,723Total 11,422 11,433 16,724 23,588

24

Source: IRDA; 2013-14 excludes standalone health insurers

Source: IRDA

Insurance commission

60%

53%

52%

53%

53%4% 6% 3% 3%

6%8%

4%

9% 9%

6%

28%

38%

35%

34%

35%

0%

10%

20%

30%

40%

50%

60%

70%

2009-10 2010-11 2011-12 2012-13 2013-14Individual agents Corporate agents-Others Banks Brokers

Revenue from Insurance

Over the years, commission figures have risen in absolute terms. Life insurance commission has grown from Rs 15,529 crore ($2,482.85 million) in 2008-09 to Rs 20,846 crore ($3,332.96 million) in 2013-14. For the same period, non-life insurance commission doubled from Rs 2,354 crore ($ 376.37 million) in 2008-09 to Rs 4,624 crore ($739.31 million) in 2013-14.

However, commission paid out as a percentage of life insurance premium has marginally declined from 7% in 2008-09 to 6.63% in 2013-14. This is still higher than the upfront commission paid out for mutual fund products.

15,529

18,185 18,329 18,521

19,261 20,846

2,354 2,503 2,757

3,338

4,021

4,624

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

-

5,000

10,000

15,000

20,000

25,000

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

(in R

s cr

ore)

(in R

s cr

ore)

Life commission (LHS) Non-life commission (RHS)

Channel wise distribution of health insurance policies (in %)

RESEARCH

25

World apart:Global distribution versus

Indian scenario

26

Differences between the financial industry in India and other major global economies are stark right now.

Global wealth has been increasing rapidly and reached $232.5 trillion in 2014 (Source: World Ultra Wealth Report 2014, Wealth X and UBS). This growth has spurred wealth management firms and private banks to expand operations into emerging economies to capture the nouveau rich market. On the other hand, sophisticated client niches are developing, seeking more bang for the buck from wealth advisors. A quick sweep of the global distribution industry, especially the US, reveals marked buoyancy.

It’s sunny side up in the US

Bank of America Global Wealth & Investment management, Morgan Stanley Smith Barney and JP Morgan are among the top wealth managers in the US, each overseeing more than $500 billion (Source: Barron’s) almost three times the mutual fund industry’s assets in India. The services include comprehensive wealth planning solutions such as retirement, tax and estate planning, family office services and banking services.

As technology advances and transparency norms become more stringent, distribution players are adapting their strategies accordingly to survive and prosper. In the US, for instance, given its mature markets and high financial penetration, the distribution industry has evolved drastically. From the basic agent at the grassroots level, the US wealth management segment now comprises registered investment advisors (RIAs)3, private banks, brokers, wire houses4 (including wire house private banks), discount brokers5, and independents and regionals. Each of these players has created a specific niche for itself in terms of client segment and value addition.

As of 2010, wire houses (full service brokerages) had the biggest share of the $10.8 trillion US distribution industry. The rest of the pie was split more or less equally among the participants, with brokers having the lowest share (Source: Booz&Co). Further, each player has developed business models to maximise profits such as consolidation of banks and wire houses to increase scale. Advisors, both independent and corporate, have started playing supporting roles in brokerage firms6. These affiliations and consolidations have led to a mix of fee-based and commission-based business. Furthermore, due to the low returns on market, US investment product manufacturers have to constantly innovate on products. This puts huge cost pressures on small and medium producers, and given the client-facing nature of the business, forces them to rely on advisors for sale.

Though technology is gaining popularity, distributors still account for a significant market share in developed economies. In 2012, 53% of investing households in the US purchased investment products through a professional advice channel7 (Source: US Fund distribution 2014, E&Y Report), indicating the importance of a personal touch.

3Registered investment advisors have to comply with a set of specific requirements including a fiduciary duty towards their clients, unlike other kinds of distributors.4Wire houses are full-service brokerages providing a complete range of services to clients such as investment banking, research, trading, and wealth management.5Discount brokers are brokers who buy and sell orders at a reduced commission compared to a full-service broker, but provide no investment advice.6http://www.forbes.com/sites/advisor/2012/08/01/is-your-financial-advisor-independent-an-ria-or-wirehouse-rep-you-have-no-idea-but-you-should/ 7Includes financial advisors, private bankers, registered investment advisors, full-service brokers, independent financial planners, investment service representatives of banks and savings institutions, insurance agents and accountants; most players in this segment have a revenue sharing agreement with the asset managers, making it viable especially for smaller distributors

US wealth management industry

RIAs Private banks

Brokers Discount brokers

Independents and regionals

Wirehouse (incl. private

banks)

RESEARCH

27

8Building society is a mutual organisation, i.e., its borrowers and savers have membership and are joint owners of the society. It receives deposits from savers and then uses the funds to give credit to its members for house purchase.9Discretion investment managers are those portfolio managers which make buy and sell decisions for the client’s account.

Elsewhere, commission regulation raises industry hackles

Commission regulation is becoming a trending issue across global markets since the introduction of the Retail Distribution Review (RDR) in the UK. Replacement of product commissions with advisor fees has resulted in a drop in institutional advisors from 4,810 (pre-RDR) to 3,556 as of January 2014, though financial advisors and discretionary investment managers have seen a marginal increase.

However, due to the abolishing of both- upfront and trail commissions, retail investors are facing the brunt of the regulation. Advisors are turning their attention towards big ticket clients as spending their time and money to get advisory fee from retail clients has become unfeasible. (Source: Navigating the post-RDR landscape in the UK, Fundscape)

Seeing the UK’s bold move, other countries have started following suit. For instance, the Future of Financial Advice legislation introduced in Australia addresses remuneration issues and includes consumer protection reforms such as the requirements that wealth managers act in the best interests of their clients (via the ‘best interests duty’ component) and firms disclose fees in annual statements.

In much of Asia, the advisory model is very fragmented and forms a marginal part of the financial distribution landscape. An RDR-style regime would likely take time to take off, and probably shouldn’t be on the agenda for most Asian countries. According to a survey conducted by Monetary Authority of Singapore (MAS) in 2012, 80% of respondents indicated they were not ready to pay an upfront fee for financial advice. Thus, the MAS deferred any ban or cap on commissions as it was aware of the pressure retail investors would likely face due to their small investment size, coupled with the likely decline in advisors to follow.

However, India seems headed in the direction of UK’s regulation standards, given the cap on upfront commission in mutual funds recently, among other moves. India has seen a primary focus on incentivising the product rather than enhancing the distribution landscape. In a country where financial penetration is quite low and investors still require handholding in the investment process, such regulation can have an adverse impact.

Meanwhile, in the world’s biggest financial market, viz., the US, commission structures, in terms of the amount actually paid by investors, have corrected themselves without regulatory intervention. As shown in the following table, maximum commission has remained relatively stable, while the percentage actually paid has shown decline.

Financial Advisers

Banks and Building Societies8

Wealth manager/ Stockbrokers

Discretionary Investment Managers9

Other Waivers Total advisers

2011 25, 616 8,658 4,044 0 2,249 - 40,566Mid 2012 23, 787 6,655 1,202 875 2,554 - 35, 07331/12/2012 20,453 4,810 2,043 1,435 2,269 122 31,132Mid 2013 (POST RDR)

21,684 4,604 2,267 1,784 2,221 129 32,690

10/1/2014 21,881 3,556 1,906 1,787 2,090 - 31,220

Impact of RDR on advisor numbers in the UK

Source: The Financial Adviser Market in Numbers (Edition 2.0) report, APFA; FCA

28

Further in countries such as Canada, self-regulatory organisations have been given higher preference. In Canada, SROs such as Mutual Fund Dealers Association (MFDA) of Canada12 and Investment Industry Regulatory Organization of Canada (IIROC) have been authorised by the central authorities of several Canadian provinces to supervise and regulate the activities of their members. They govern mutual fund and investment dealers by setting and enforcing business standards and practices. As of December 2014, members of MFDA had a total AUA of $436.40 billion, with a membership of 108 members, and a sales force of 80,722 persons13. It is periodically reviewed by various provincial securities commissions in Canada.

IIROC regulates broker dealers dealing in a variety of equity instruments- from stocks to mutual funds. It enforces regulations on its members and is audited annually by the Canadian Securities Association. It has a Complaints and Settlement Reporting System for enabling reporting client complaints and disciplinary issues by dealer members. As seen below, total complaints have been declining annually.

* as of Jan 31Source: IIROC14

2012 2013 2014 2015*Civil claim 1,355 333 186 12Criminal charge 12 8 3 1Customer complaint 1,529 1,307 1,057 51Denial of registration or approval - - - -External disciplinary action 6 3 3 -Internal disciplinary action 17 29 37 1Internal investigation 72 65 69 5Total Number of reports 1,968 1,745 1,355 70

10The maximum front-end sales load is a simple average of the highest front-end load that funds may charge as set forth in their prospectuses. 11The average front-end sales load that investors actually paid is the total front-end sales loads collected by funds that funds collected divided by the total maxi-mum loads that the funds could have collected based on their new sales that year. This ratio is then multiplied by each fund's maximum sales load. The resulting value is then averaged (simple average) across all funds.12MFDA was created in the late 1990s, in response to the rapid growth of mutual funds in Canada in the late 1980s from $40 billion to $400 billion. It was created at the initiative of the Canadian Securities Administrators (CSA). 13http://www.mfda.ca/members/memberstats.html 14 http://www.iiroc.ca/industry/enforcement/Pages/Statistics.aspx

Percentage of purchase amountNote: Data excludes mutual funds available as investment choices in variable annuities and mutual funds that invest primarily in other mutual funds.Sources: Investment Company Institute (ICI), Lipper, and Strategic Insight Simfund

Maximum front-end sales load10 Average front-end sales load that investors actually paid 11

Equity Hybrid Bond Equity Hybrid Bond1990 5.0 5.0 4.6 3.9 3.8 3.51995 4.8 4.7 4.1 2.5 2.4 2.12000 5.2 5.1 4.2 1.4 1.4 1.12005 5.3 5.3 4.0 1.3 1.3 1.02010 5.4 5.2 3.9 1.0 1.0 0.82013 5.3 5.2 3.8 1.0 1.0 0.7

RESEARCH

29

Small mercy: retirement funds catching upRetirement planning has a huge potential for getting tapped, but also helps increase financial penetration significantly. Countries with retirement benefits through mutual funds have shown a higher MF AUM to GDP ratio. For example, USA and Australia - both have retirement funds investing through MFs - have an MF AUM to GDP ratio of about 91% and 111%, respectively.

As of March 2015, total assets under superannuation (pension) funds in Australia were AUD 2.05 trillion (Source: ASFA). By making employee contribution compulsory, Australia has not only increased financial penetration, but also vastly expanded the financial industry.

Among the emerging economies as well, Chile has proven to be a stellar example of pension funds leading to financial market growth. The country has privately managed pension funds (similar to the 401k of the US) called AFPs. As of 2013, Chile’s pension fund assets summed up to $162.99 billion15 , making it about 59% of the GDP16.

Emulating Brazil’s homemade growth

Brazil, a fast emerging economy, had MF AUM of $1.02 trillion during 2012-13, a significant advancement from $479.32 billion in 2007-08 – an absolute growth of 113%. Its MF AUM to GDP ratio in 2013-14 was about 42%. Some of the reasons behind this growth are:

■ High proportion of domestic flows, with more than 90% of fund assets invested locally17

■ More than half of fund assets invested in money and fixed income funds due to the country’s high interest rates

■ Rapid growth of HNIs

■ Capital markets relatively more open to globalisation compared with say China

15http://data.oecd.org/pension/pension-funds-assets.htm 16http://data.worldbank.org/country/chile 17https://www.citibank.com/mss/docs/brazil_local_insights.pdf

Source: ICI, World Bank

5.13%

9.54%

6.52%

4.75%

6.24%5.75%

6.57%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

2008 2009 2010 2011 2012 2013 2014

Brazil Chile China Canada

United States United Kingdom Australia India (RHS)

Mutual Fund AUM to GDP ratio: India vs. others

30

India Australia Canada UK Brazil

Growth factors Tax arbitrageParticipation from institutional and HNI investors

Large investor baseMature financial marketCompulsory re-tirement income (superannuation funds)

Mature financial marketHigh level of finan-cial penetrationFinancial interme-diaries’ SROs – IIROC and MFDA

High level of financial penetrationMature financial markets

Driven by domestic factors such as interest rates

Recent regula-tions for interme-diaries

Capping on Upfront Com-mission in MF, IRDA to regu-late commission structure of insurance

Future of Fi-nancial Advice (FOFA)Best interests duty

New disclosure re-quirements for the Client Relationship Model- three year phased approach to improve trans-parency

Retail Distri-bution Re-view (RDR)Advisor charging

-

Investment advisory guide-lines, multiple insurance tie-ups possible for banks

Ban on conflicted remuneration

Ban on com-missions

MF AUM(as of 2014,Source: ICI)

$134.63 billion $1,601.13 billion $981.80 billion $1,182.18 billion

$989.54 billion

MF AUM to GDP ratio (as of 2014)(Source: GDP figures, IMF)

6.57 % 110.87% 54.89% 40.14% 42.05%

RESEARCH

31

Technological enablers

Turnkey asset management programs (TAMPs) TAMPs are platforms which allow advisors to outsource administrative and accounting services. They also provide back-end reporting and investment management options. They charge a percentage of assets under management. Thus, they reduce costs significantly as overheads become an issue during times of market downturns. IFAs, who cannot afford their own platforms and are dependent on advisory revenues, are able to turn to TAMPs for back-end processes for an asset-based fee that can range from a few bps to 280 bps. The top players in the field are SEI, Genworth, and Envestnet.18 TAMPs have different categories such as mutual fund wraps and ETF wraps, which enable advisors to cater to different client segments. In 2011, assets placed with such outsourced solutions exceeded $250 billion compared to $16 billion in 1996.

Wrap platformsWrap platforms are popular globally and allow advisors to collate their clients’ investments, enabling them to view them at a glance and make changes efficiently. Through wraps, brokers are able to provide not only com-plete transactions, but also portfolio management as they manage money along with client transactions. This concept gained popularity as IFAs increased in number.

These platforms are economical for those with a lot of capital to invest. Wrap accounts require a quarterly or annual fee and thus prevent overtrading (i.e., excessively trading on a client’s account to make more commis-sion) by brokers; given a flat fee, the broker does not earn commission from switching and trades only when it is advantageous to the client. Wrap providers are also able to offer significantly reduced fund charges due to arrangements with fund managers and stockbrokers. Wraps also streamline paperwork, making investing more efficient. Cofunds, FundsNetwork, Transact, Standard Life Wrap, and Skandia are the prominent players in the industry.

18http://sowellmanagement.com/wp-content/uploads/2014/06/2014_americas_best_tamps.pdf

32

RESEARCH

33

Financial distribution on cusp of growth

34

The financial products distribution industry in India, can expand exponentially over the next six years given a stable and progressive regulatory environment, steady growth in GDP and the financial markets, and efforts by participants to deepen its reach.

Within the financial products universe, the mutual funds and insurance segments could see rapid growth as investors increasingly shift from traditional products to market-linked products for wealth creation.

Mutual funds

In base case, AUM doubles in 6 years...Assuming the scenario remains unchanged from today, the mutual fund industry’s AUM growth will likely be restricted to Rs 25 lakh crore ($399.71 bn), with compounded annualised growth rate (CAGR) of 16%.

For distributors, this translates to a limited growth of 13% in AUM- leading to AUM of Rs.16 lakh crore ($ 255.82 bn) by 2020. Further, a stationary environment would mean commissions for distributors becoming limited to Rs 9,500 crore ($1,518.91 mn)

...in optimistic case, the industry has potential to more than treble

In an optimistic scenario, we expect mutual funds’ assets under management (AUM) to more than treble by 2020, going from Rs 11.86 lakh crore ($189.62 bn) in March 2015 to Rs 37 lakh crore ($591.57 bn). Growth in equity funds and rising penetration of financial products and services (refer to annexure) will be the key drivers for this sharp uptrend.

With increased penetration, rising young population and continued growth in the capital markets, interest in eq-uity funds is bound to increase. Equity funds’ AUM could then grow almost six times - from Rs 3.82 lakh crore ($ 61.08 bn) in 2015 to Rs 21 lakh crore ($335.76 bn) in 2020, at a whopping CAGR of 34% growing their share of industry AUM to 55% from 33%.

7.92

23

0

5

10

15

20

25

2015 2020

in R

s. la

kh c

rore

Distributor AUM

With rise in penetration

RESEARCH

35

For distributors, AUM size could grow to Rs 23 lakh crore ($367.74 bn), aided by equity AUM, which could stand at Rs 16 lakh crore ($255.82 bn).

Opportunity for distributors For distributors, this translates to a golden opportunity, what with the average investor still requiring guidance through the complicated maze of investments. Through asset allocation into equity and debt mutual funds, the retail and HNI segment could contribute as much as Rs 19 lakh crore ($303.78 bn) in 2020, helped in no small measure by rising population and a burgeoning middle and upper middle class. However, widening the investor base in T15 (beyond Maharashtra and Delhi) and B15 cities, and retaining existing clients would be critical if they are to reach this goal. Commissions are estimated to rise at a CAGR of 34% to Rs 21,000 crore ($ 3,358 mn) by 2020 from Rs 2,581 crore ($413 mn) at present.

Additional trends from the analysis

■ Mutual fund distribution AUM expected to split almost equally between the three primary distributors - banks, IFAs and NDs, with the share of IFAs growing the fastest.

Revenue share by 2020

AUM Share by 2020

29%

32%

39% National distributors

Banks

IFAs

34%

33%

33%

NDs

Banks

IFAs

36

■ Greater penetration expected to ride on growth in the IFA channel as more players come into the market across the country and adapt to technology platforms and aggregators to cut costs and effectively manage client investments across products.

■ NDs expected to focus on HNIs and Ultra HNIs for larger ticket sizes to maintain profitability and stop chas-ing a large number of clients. Their large size and value-added services should help here.

■ Banks, both private and public sector, are in a sweet spot to capture the large middle class population. Mutual funds can become a significant pie for the banking distribution channel with better business/profit proposition.

■ The share of Retail and HNI in the total AUM is espected to grow from 46% to 74% by 2020 in the optismitic scenario.

InsuranceBase case shows dull fare...

Assuming penetration levels remain the same as today, the insurance industry is estimated to log a none-too-in-spiring growth rate. In case of life insurance, total premium is expected to increase from Rs 3.14 lakh crore ($50.20 bn) to Rs 7.41 lakh crore ($118.47 bn) by 2020, while in the non-life segment, premiums could grow to around Rs 1.38 lakh crore ($22.06 bn) from Rs. 0.71 lakh crore ($11.35 bn).

The premium collected and the commissions in the life insurance is expected to grow by CAGR of 15% each, by 2020 to Rs. 7.22 lakh crore ($115.44 bn) and Rs. 48,000 crores ($7,674 mn), respectively. The premium and commission under non-life segment are expected to grow by CAGR of 12% each- to Rs.0.98 lakh crore ($15.67 bn) and Rs.6,400 crores ($1,023 mn), respectively.

Motor insurance premiums are expected to increase due to the expected growth in domestic cars and utility vehicles - estimated at 10-12% CAGR between 2013-14 and 2018-19, following up on a 10% CAGR in the last five years. Similarly, the health insurance segment should benefit from an expected 13% annualised growth in the healthcare delivery market over the next five years as per CRISIL Research. Given the mounting costs of healthcare and inflation still relatively high, health insurance is likely to become more popular for the retail and mass affluent in future.

Growth would likely be fuelled by an increase in population, particularly the working age group, increase in insurance penetration and growth in new policies (new premium). Though we expect LIC to continue to be far ahead of the private sector in terms of AUM market share, with over 70% share, the private sector could grow faster in terms of AUM.

Traditional life insurance will likely remain the most popular and pushed product among all three categories of distributors if the pricing disparity continues. Among banks and NDs, ULIPs should account for a significant amount of transactions.

...but picture brightens with penetration

We expect the number of investors to increase significantly as players go deeper into the countryside (refer to annexures). Insurance has been a historically significant product for investors and its popularity is likely to grow exponentially as more investors realise its importance. Total premium in the life insurance segment is estimated to nearly treble from Rs 3.14 lakh crore ($50.20 bn) in 2014 to Rs 8.98 lakh crore ($143.58 bn) in 2020, even as the non-life insurance segment goes from Rs 0.71 lakh crore ($11.35 bn) to Rs 1.83 lakh crore ($29.26 bn).

RESEARCH

37

The premium collected and the commissions in the life insurance segment is expected to grow by CAGR of 19% each, by 2020 to Rs. 8.74 lakh crore ($139.74 bn) and Rs. 58,000 crores ($9,273 mn), respectively. The premi-um and commission under non-life segment is expected to grow by CAGR of 17% each to Rs.1.31 lakh crore ($20.94 bn) and Rs.8,500 crores ($1,359 mn), respectively.

The overall distribution pie of the total premium under life and non-life insurance is expected to grow at the same pace till 2020. Therefore, there could be subtle changes in the overall distribution pie in 2020.

50,437

130,640

0

20000

40000

60000

80000

100000

120000

140000

2014 2020

in R

s. c

rore

Distributor premium

Alternatives and PMS

As AIFs and PMS are niche products, mainly targeting the HNI and UHNI segment they form a small part of the overall product pie. India being a developing economy is yet to see significant wealth distribution for this investment category to grow. This segment is likely to rise due to the increase in HNIs over the next few years. However, this figure would likely be marginal.

Optimistic case: Total premium @0.90% penetration

Individual agents, 77%

Corporate agents -

banks, 15% Corporate agents - others,

2%

Brokers, 6%

Distribution of insurance premium in 2020

38

RESEARCH

39

What stands in the way

40

The financial products distribution business faces a host of issues which must be tackled urgently if the industry is to achieve its growth potential. Some of these are:

Administrative costsRising employee costs (fixed and variable) and real estate prices will also adversely impact the distribution in-dustry’s growth. The rise in real estate prices will be a big detriment for NDs and regional players, who would be looking to step up physical presence.

Currently, the distribution industry is grappling with changes in its business model, leading to lower margins. The recently introduced cap on upfront commission as well as the removal of service tax exemption status could erode margins and be a major dampener for the industry. If the issue is not addressed, it could lead to the indus-try potential not being met by a wide margin.

This can affect players who haven’t adopted a scalable model. Lower margins also make entry so much more difficult for new players. For example, becoming an insurance broker can require net worth of Rs. 50-250 lakh depending on the kind of insurance products dealt in. This particularly hurts small IFAs. While automation cuts costs, complex systems can add up to the costs when business plans are revised.

Decline in active distributorsThere has been a decline in the number of active distributors in recent years for both mutual funds and insur-ance. Retaining distributors and retail agents becomes a huge challenge for insurers in particular, considering they invest a lot on training. High level of churn affects the players’ long-term plans and costs. With fewer play-ers, the reach across different income and geographical segments is limited and penetration that much more difficult. We believe having players catering to multiple segments will improve the economics of the business.

Talent management also becomes important, particularly for larger players, as they struggle to retain key talent. In order to tackle relationship manager (RM) attrition, the distribution business must be institutionalised – for instance, multiple faces meeting the clients, offering more internal opportunities to RMs, changing job roles. Human resource practices will play a key role here.

Lack of investor awarenessFinancial literacy in the country is still at a low level. With little awareness about other financial products and services, investors tend to invest in traditional assets such as gold and real estate.

As the economy grows and disposable income rises, investors will need financial planning and allocation be-yond these asset classes to reach their goals. This will require a good deal of hand-holding by the distributors. But only a full-blooded campaign to spread financial literacy and awareness can wean the investing public into non-traditional avenues.

Mis-selling One often-flagged issue has been mis-selling, or unethical sales practices, wherein an investor may have been led to invest in a product not appropriate for his age or financial situation, or a product that subsequently caused losses.

Thankfully, actual instances of mis-selling are on the wane.

In mutual funds, data shows mis-selling complaints have fallen to a mere 0.013% of total folios in 2013-14, down from 0.023% the previous year. The bulk of these complaints were due to non-updation of client changes, fol-lowed by wrong switch between schemes.

RESEARCH

41

In the insurance sector, despite yearly increase in the number of complaints, resolution rates have risen signifi-cantly. Overall complaint resolution rate in life insurance has increased from 86.41% in 2009-10 to 99.69% in 2013-14, while in the non-life segment it has risen from 79.63% in 2009-10 to 98.71% in 2013-14.

Further, in the recent insurance amendment, penalisation for mis-selling, misrepresentation and other such violations now include higher penalties for intermediaries and/or insurance companies. It also disallows mis-selling through multi-level marketing of insurance products. The move is expected to make intermediaries and insurers more stringent in terms of business practices.

Business viability study for IFA in B-15 city

Financial statement Year 1 Year 2 Year 3 Year 4

Annual cost 2,70,000 2,86,000 3,14,000 3,46,000Revenue 2,64,000 4,07,000 5,29,000 6,40,000Profit in the year -6,000 1,21,000 2,15,000 2,94,000Net profit per month -500 10,000 18,000 24,500

The study reveals that there is a net loss in the first year due to lower client and AUM base. With rise in active client base and AUM, it earns profit in subsequent years. In the initial years, revenue is driven by sale of life insurance policies. In subsequent years, with the rise in mutual fund AUM, the share of mutual funds in total revenue goes up.

Assumptions for the case study are as follows.

- IFA acquires 40 clients for mutual fund investments with annual ticket size of Rs. 1.2 lakh (Rs. 10,000 er month) and sells at least 1 insurance policy every month with annual premium of Rs. 60,000 (cover of Rs. 20 lakh for 30 years)- In the subsequent year, he adds 20 mutual fund clients and all the existing clients are active- Annual cost of Rs.2.7 lakh in first year includes expenses such as rent, internet, telephone, conveyance, laptop, registration fee and the annual cost increases by 10% every year- The annual ticket size of investments by mutual fund clients increases by 12% every year- Mutual fund upfront commission is 1% in the first year, while trail commission is 0.75% every year

- Insurance commission is 30% of premium in the first year, 7.5% in second and 5% in subsequent years

Business viability study for relationship manager (RM) in T-15 city

Financial statement Year 1 Year 2 Year 3 Year 4

Annual cost 12,00,000 13,44,000 15,00,000 16,90,000

Revenue 6,50,000 10,28,000 14,34,000 16,79,000

Profit in the year -5,50,000 -3,16,000 -66,000 -11,000

The study reveals that RM misses the revenue target by huge margin in the initial years, but the gap reduces considerably in the third and fourth years as the client base and AUM swell. With higher attrition rate and loyal clients moving out with the change in RMs, revenue growth is restricted.

42

Assumptions for the case study are as follows.

- Acquires and adds 25 retail active clients each year for mutual fund investments and handles a maximum of 75 clients, the annual investment growing 12% from Rs. 1.2 lakh- Acquires and adds 12 HNI active clients each year for mutual fund investments and handles a maximum of 36 clients, the annual investment growing 12% from Rs. 12 lakh- Sells at least 2 insurance policies every month with annual premium of Rs. 60,000 (cover of Rs. 20 lakh for 30 years)- Expected revenue to be generated is 3 times of the salary, grows at 12% every year- Mutual fund commission is 1.25% for first year while trail commission is 0.75% every year- Insurance commission in the first year is 30% of premium, second year 7.5%, and 5% for subsequent year

Mutual fund commissions should continue to remain reasonable and at levels, which can lead to viable business models for IFAs and RMs. This would let them continue the pursuit of growth of financial inclusion. Lest, they will only continue to focus on large and few clients, and not focus on small clients and increasing the size of the industry

RESEARCH

43

What can drive growth

44

The vision of the mutual fund and insurance industries reaching our optimistic-case projections would require action from both distributors and regulators, keeping the following factors in mind:

Geographical expansion

With almost half the mutual fund industry AUM being concentrated in Maharashtra, there is significant potential for the distribution industry to tap new investors in other T15 and B15 cities (‘T15’ stands for top 15 cities and ‘B15’ for beyond the top 15). With emerging wealthy classes in semi-urban areas, distributors can benefit greatly.

IFAs are expected to mushroom in small towns aided by growth in aggregators even as banks and regional players also expand considerably. However, NDs are likely to see the least growth as branch expansion is a highly cost-intensive issue, unlike for banks, which just need to add manpower to the branches because they are already technologically competent. IFAs would then have the largest market share in the distribution industry as they are likely to aggregate due to cost-effective technological solutions.

Job creation and training

Today about 80,000 ARN (AMFI Registration Number) and EUIN (Employee Unique Identification Number) hold-ers cater to around 1 crore investors.

Achieving the huge potential of the industry will take a large workforce. With expected tripling of investor base by 2020, the salesforce in the industry will also need to grow 3 to 5 times, with a simultaneous increase in em-ployment of bank branch staff and distributors’ support staff.

However, lack of skilled intermediaries poses a major roadblock. As the number of investors with sizeable sur-plus increases, the investment vehicles are also multiplying and getting more complex. Channelling these funds into suitable investments requires a network of skilled and efficient intermediaries, or the industry might lose clients looking for further value addition.

At present, sales effort is more concentrated on bigger investors such as corporates, as seen in the skewed AUM of the industry. Lack of awareness of products among investors, coupled with low financial penetration, limits the reach of the distribution industry.

Source: AMFI

0%

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20%

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AUM (Rs Cr) % Share in AUM

State-wise share

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45

In order to broaden the base so that financial planning and advisory services can be offered to the growing mid-dle class population, a concerted skill development and training effort will have to be embarked upon. Without adequate skill sets, the services rendered will continue to remain at a transactional level. Hence, distributors would have to undertake training of intermediaries and provide vocational training, especially in semi-urban ar-eas. The new labour force would have to be equipped with adequate knowledge to deal with clients.

In the insurance industry, new segments are coming up as newer customer bases are discovered credit card insurance, for example. With the introduction of insurance marketing firms (IMFs), more entrants would be at-tracted into the insurance distribution industry.

An IMF can deal in various financial products such as mutual funds, insurance and bank deposits, provided the requisite permissions are obtained from the respective regulators. There will be two kind of licensed individual, an Insurance Sales Person (ISP) who will be responsible for selling insurance and a Financial Service Executive (FSE) who will distribute other financial products. It will not be restricted to distributing the products of a specific company, but rather to a specific region in order to ensure better penetration and customer service. Introduction of the IMF concept could see insurers lose agents and revenue margins, though they will have more opportuni-ties to distribute their products. Ironically, a player is required to have a net worth of at least Rs. 10 lakh to be an IMF. Managing these contradictions would be a big challenge for the industry.

Financial literacy and awareness

The level of financial inclusion in the country remains low despite numerous steps taken by the government and the Reserve Bank of India (RBI) over the past few years. Many individuals with surplus money in Tier II, Tier III cities and beyond do not yet have bank accounts. The Central government’s recently launched Jan-Dhan Yojana is a step in the right direction and will boost penetration.

This will also help the distribution industry reach out to the masses. The players, though, need to focus on mi-cro-insurance products and micro-pension products while holding investor awareness programmes.

Banks can play an important role in catering to the retail segment, particularly the growing middle class. The local bank can be one-stop-shop for all services including savings, loans and investments in future.

Greater effort will be required to make investors understand investment concepts, their benefits, as well as transaction procedures. Several touch points would be needed for investors to be able to access information.

Advisory business

As investor awareness improves, value addition becomes increasingly crucial, with investors seeking insightful financial advice to meet their long-term and short-term goals. The distribution industry can embrace newer prod-uct services and innovate delivery mechanisms for catering to the demands of investors, particularly the rich. As per Kotak Wealth Report 2014, India had about 1.17 lakh ultra-high net-worth individual households – a number projected to go up to 3.43 lakh in 2018-19 with total worth of Rs. 408 lakh crore.

This sets the stage for growth of the financial advisory business. Indeed, as financial awareness of investors improves, financial planning and advisory services would become key differentiators for distributors against transaction-oriented online platforms.

Financial advisory as a profession doesn’t require much capital and can provide employment and entrepreneurial opportunities to the educated youth. Today, information is far more easily available to investors because of advances in technology and the presence of online portals and execution platforms. As a financial services distributor, one would require to constantly update information, streamline execution and offer value-added services.

46

The good part is, despite growing use of technology, investors still prefer rendezvous discussions to understand the status of their investments and future cash-flow requirements. Distributors will need to walk a thin line in managing existing clients’ expectations and business expansion.

External forces

Macro-economic factors

In the immediate term, the election of a new stable government is likely to improve the performance of capital markets, which will result in income inflows from financial assets. In the long term, the key growth drivers for the financial product industry are the country’s huge demographic dividend, and the expected improvement in economic growth, both of which will fuel a rise in disposable income and savings.

Low interest rates in international markets and untapped cash reserves held globally are expected to make India attractive to international investors, and boost fund flows into capital markets. Other factors that will drive growth include a supportive regulatory environment, and policies that support customer-centric products and practices that aid business.

Affordable housing policies will also have a beneficial impact because lower middle income groups would then have bigger surpluses to invest in financial assets.

For the rest, factors such as encouraging GDP growth and low levels of inflation will continue to drive investor sentiment.

Performance of capital markets

Globally, the growth of private wealth was driven primarily by returns on equity assets as per BCG Global Wealth Report. The amount of wealth held in equities grew 28%, while cash and deposits lagged at 8.8% in 2013.

But with low awareness, retail investors tend to jump onto the market bandwagon at peaks rather than troughs. During the bull phase of 2007-2008, for instance, retail participation in equities had gone up tremendously, and was followed, somewhat predictably, by a case of ‘once bitten, twice shy’. More reason the distribution industry should dig deep and wide.

Taxation

Globally, tax incentives have played a big role in promoting the financial investment industry. For instance, in the US (the world’s biggest financial market), the 401K retirement planning has provided the biggest push to the mutual fund industry. Similarly, in the UK, Enterprise Investment Schemes and Seed Enterprise Investment Scheme (SEIS) receive tax breaks on capital gain/loss, as well as exemption from inheritance tax, and capital gains tax already paid can be claimed up to 50% if reinvested into SEIS.

In India, too, the distribution industry can do well if the right tax incentives are available for products.

Technology

As investors become more tech savvy, the pace of integration of newer technologies becomes easier. Recent initiatives to extend financial inclusion through mobile banking and trading and initiatives to enable tablet-based investments are precursors to the great role technology will play in years to come. The importance of using technology to deepen the reach of financial products is understood by the capital markets regulator the Secu-

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rities and Exchange Board of India as well, which plans to set up an expert panel to recommend measures for increasing distribution of mutual fund products through digital modes such as internet and mobiles.

There is likely to be greater use of owned platforms and social media, and development of more industry-fo-cused mobile applications. Traditional platforms may see a decline, while use of third-party platforms may in-crease marginally.

The mutual fund distribution industry is gradually becoming aware of this. For example, it is gravitating towards online operations, as moves such as the MF Utility application by the Association of Mutual Funds in India make the intention of paperless processes clear. FinNet by CAMS, StAR MF platform by Bombay Stock Exhange (BSE), and Mutual Fund Service System (MFSS) by National Stock Exchange (NSE) are also significant plat-forms in the online financial distribution landscape.

In the insurance industry, semi-urban and rural customers are likely to gain from the evolving distribution system. Common Service Centres, the cornerstone of the nation’s e-Governance plan, could revolutionise accessibility of insurance in remote parts of the country. It could be the key to improving penetration levels.

In terms of distributor usage, technology will continue to be crucial -- irrespective of whether the distributor is a bank, an ND or an IFA – to fostering growth. Within the three segment, banks and NDs are expected to develop / enhance their own technology platforms while IFAs would be inclined to use third party online platforms (due to costs involved in developing the platforms).

Insurance amendment

In the recent Insurance Laws (Amendment) Act, 2015, the government has enhanced the foreign direct invest-ment (FDI) limit in the industry to 49% from the 25% currently. This can provide a boost to the industry as this capitalisation could be used by insurance industry to extend distribution reach and improve efficiency through better distribution technology. Further, domestic insurers could gain from the additional expertise of their foreign counterparts in the form of business practices and additional products.

The amendment also proposes multiple insurer tie-ups across corporate agents (such as banks), which could enhance competition among insurance distributors. Other moves, such as introduction of the insurance market-ing firms for servicing specific regions in which these units will operate, could increase insurance penetration and distribution. By having the liberty to deal in various financial products such as mutual funds, insurance and bank deposits, and with a minimum net worth requirement of Rs. 10 lakh, this concept could prove lucrative for distributors.

The amendment also gives more power to IRDA to take charge of key aspects such as solvency, expenses, and commissions and proposes to extend the insurance industry’s reach to under-served areas. The distribution industry could benefit from the enhanced role of the regulatory body.

Emerging trends and best practices

Retirement planning solutions

Retirement planning is getting increasingly important. As per a CRISIL Report (CRISIL Insight- When India ages, whither pension for all), India has 100 million people aged 60 or more today, and this number will triple by 2050. If not catered to by the private sector, the fiscal burden of the population’s pension would be 6% of GDP by 2030. As Indian households shift from a joint family structure to a nuclear one, it becomes necessary for those with investible surplus to start building a nest egg for their golden years. Thus, wealth creation through financial

48

products will be a must for post-retirement. But there is a need for making people more aware of its benefits and to educate them on the importance of retirement planning. Perhaps, a dashboard of the plan for retirement can be created for the investor, which can then be reviewed regularly.

Under the 401(k) plan in the US named after the Internal Revenue Service tax code that governs it employees can make reductions in their salary as contributions to a retirement savings plan established by the employer. The employer may also make contributions to match a portion of the employees’ contributions. However, the IRS imposes certain regulations and limitations on concerns such as the amount which can be contributed every month, and when can one withdraw from the corpus. As of December 31, 2013, there were 26.4 million 401 (k) participants in 72,676 employer-sponsored 401(k) plans, holding assets worth US$ 1.912 trillion19.

At a macro level, introduction of independently managed retirement funds (similar to the 401(k)) could be ex-plored as a possible alternative or supplement to the existing government pension schemes. Given the liberty to manage one’s own or his/her employees’ retirement corpus, one could hire financial advisors to maximise the investment as per his/her risk appetite and target returns.

Better sales processes

There will also be a need to scrutinise distributors on the quality and quantity of selling/ distribution. This will mean evolution of appropriate benchmarks to rank distributors. Employee unique identification numbers of in-vestment counsellors can, for instance, be used to scrutinise their distribution/ investment advice.

Learning and development is essential for the distribution and advisory industry to develop competence and evolve to higher levels of value addition. For some, this may mean as little as complying with the bare minimum of regulatory requirements, while for others, it may require re-developing the whole infrastructure. Companies have to approach learning and development in a holistic manner – from evaluating one’s business objectives to re-evaluating the working structure, and analysing one’s work culture and environment. Core advisory teams comprising experts and research analysts can also be employed to ensure quality of advice and research sup-port.

Mis-selling if any can be controlled through improved sales processes like mystery shopping, quality checks, and ongoing continuous education programs.

Online and mobile platforms

As mentioned earlier, technology will play a key role in the evolution of the industry by simplifying processes, reducing transaction costs and increasing transparency.

Further, technology can be used to:

■ Acquire investorsRecent initiatives to extend financial inclusion through mobile banking and trading and initiatives to enable tablet-based investments are precursors to the great role technology will play in years to come. For instance, online purchase of financial products (innovation such as mobile insurance in term life and general insur-ance space) has great potential as there are more than 240 million internet users in India (about 19% of the population)20.

19 http://www.ebri.org/pdf/briefspdf/EBRI_IB_408_Dec14.401(k)-update.pdf 20http://www.internetlivestats.com/internet-users/

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49

■ Service investorsTechnology will play an important role in reducing operational hassles involving know your customer, or KYC, norms, many of which are still cumbersome and inconvenient for investors. Possible areas where technology can simplify KYC processes include implementation e-KYC norms and creation of a centralised national database for KYC data. Online platforms will also push distributors to provide value addition to cli-ents. Online advisory platforms, too, could emerge.

■ Reduce costsAppropriate technology can also help reduce transaction costs. A reduction in physical costs (paperwork, la-bour) enables the distributor to focus on value addition for the client, bring in efficiency of time and increase volume. IFAs could be the biggest beneficiary of this. In addition, technology can play a major part in com-pliance of rules and regulations in maintaining up-to-date database as per the norms.

Succession planning

After the global financial crisis of 2008, many countries are seeking ways to improve their tax collections, partic-ularly from the rich and the wealthy. In India, one of the ways that is currently being debated is re-introduction of inheritance tax. If it is introduced, wealth management and succession planning will gain importance among the emerging affluent sections of the population.

Creation of a self-regulating association

A self-regulating association, representing financial intermediaries across all business verticals- could help in-crease financial penetration. Such an association would be responsible for monitoring and regulating its mem-bers. It would be able to establish and regularly release, best practices and guidelines for its members, keeping in mind the interests of investors. Such a move could help reduce mis-selling significantly.

20 http://www.internetlivestats.com/internet-users/

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Annexure

52

Assumptions used for the projection in mutual fund and insurance industry in the report

20142020

Remarks / AssumptionsBase scenario

Optimistic scenario

No. of households with annual income above Rs. 5 lakh

6.24 crores

12.14 crores

12.14 crores

CRISIL Research estimates

Retail Investor (household)

Individuals in the household where the household income is between Rs. 5 lakh and Rs. 1 crore

HNIs/UHNIs (household)

Individuals in the household where the household income is greater than Rs. 1 crore

Mutual Fund Investor base

1.3 crores

2.53 crores

3.56 crores Based on the total folios in the industry as per AMFI where unique investor is arrived by assuming that on an average an individual investor has three folios and corporate/institutional investor has thirty folios

Assumptions for forecasting of assets under management for mutual funds

Rs. 10.51crores

Rs. 25 lakh crores

Rs. 37 lakh crores

(i) Investor doesn’t switch investments from one asset to another asset class and holds the assets for the next six years

(ii) Ticket size is computed using average net inflows data over the past ten year period

(iii) Investments grow as per the expected return from the equity (15.25%), debt (8.31%) and liquid (8.21%) asset categories (represented by 5-year returns of CRISIL-AMFI fund performance indices) over the next five years

(iv) Mutual fund industry is able increase the corporate money in liquid funds. Annual net increase in the AUM of liquid funds is assumed at 1.46% (as per historical ten-year average)

Penetration in mutual funds

5.2% 5.2% 7.3% Penetration is defined as no. of investors in mutual funds out of total no. of individuals in the households having annual income of more than Rs. 5 lakhs

Assumptions for Optimistic scenario in mutual funds

Higher penetration is achieved by doing the following:(i) Industry is able to capture the maximum out of rising

middle class income group by doing what is required, such as reaching new cities

(ii) Increasing the investor base through geographical expan-sion to B-15 cities along with greater penetration to T-15 cities

(iii) rise in annual growth in the households numbers – retail and HNI segment by 12% and 21% respectively based upon CRISIL Research estimates

(iv) 12% and 18% growth in annual investment amount (ticket size) in retail and HNI segment, respectively

(v) Nearly 0.50% and 0.75% of existing retail and HNI individ-uals will be covered under distribution in addition to new investor base

Assumptions for Base scenario in mutual funds

The penetration level remains unchanged(i) The existing investors (retail and HNI) continue to invest in

equity, debt and liquid mutual funds with 12% increase in ticket size for the next six years

(ii) Investments through retail and HNI channel are estimated to grow at the rate of nominal GDP

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53

20142020

Remarks / AssumptionsBase scenario

Optimistic scenario

Revenue of the distributors in mutual funds

Rs. 2,581 crores

Rs. 9,500 crores

Rs. 21,000 crores

(i) The gross inflow during the year is assumed to be nearly 5 times of projected net inflow during the year under debt mutual funds and 2.7 times of the projected inflows during the year under equity mutual funds based on the past trends

(ii) 55% of the total gross flow in debt mutual fund is through distributors

(iii) 94% of the total gross flow in equity mutual fund is through distributors

(iv) Distributor earns the upfront commission on the gross in-flows during the year and trail commission is earned on the outstanding AUM at the end of previous financial year

(v) An average upfront commission of 1.25% and 0.75%, each , is earned on equity and debt mutual funds; respectively

(vi) An average trail commission of 0.50% and 0.40% is earned on equity and debt mutual funds; respectively

Insurance premium Rs. 3.85 lakh

crores

Rs. 8.79 lakh

crores

Rs. 10.81 lakh crores

(i) GDP growth forecast for 2020 as per Central Statistical Organization (CSO)

(ii) Premium projections of Life and Non-life are based on the Insurance Penetration

- For optimistic case – the maximum penetra-tion in the last 10 years is used

- For Base case – the average penetration in last 10 years is used

Premium through distribution channel

Rs. 3.57 lakh

crores

Rs.8.20 lakh

crores

Rs. 10.05 lakh crores

The share of direct premium in the insurance industry contin-ues to be at current levels

Commission earned by distribution channel

Rs. 25,470 crores

Rs. 54,000 crores

Rs. 66,000 crores

The average commission percentage charged to the premium stays at current level- 6.63% for life insurance premium- 6.55% for non-life insurance premium

Penetration in Life insurance

3.00% 3.63% 4.39%

Penetration in Non-life insurance

0.67% 0.67% 0.90%

Exchange rate used for INR to USD

US $1 = Rs. 62.55 (as on 31st March, 2015)

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About FIAIFIAI (Financial Intermediaries Association of India) is the premier trade body of Financial Intermediaries in India comprising Banks, National Distributors, Private Wealth Management Companies and IFA Associations. It is the Financial Distributors' body created to strengthen the cause, development, education and progress of the Distribution Industry.

FIAI’s endeavor is to bring all the distribution players on one common platform to pursue the Industry Development, Issue resolution, Industry positioning & welfare. Its twenty four members are estimated to represent more than 60% of Industry's ARN holders (Mutual Fund sellers). The body has been in regular action like organizing Financial Literacy drives, conducting investor surveys, organizing own events, participating in important forums like being Industry support partner to Industry events, representing with SEBI, Ministry of Finance and AMFI through meetings & submitting white papers and various other activities.

Role of FIAI

AcknowledgementCRISIL and FIAI are grateful to CAMS for providing extensive information on mutual fund AUM. This research report would not have been possible without the data.

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About CRISIL LimitedCRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

About CRISIL ResearchCRISIL Research is India's largest independent integrated research house. We provide insights, opinion and analysis on the Indian economy, industry, capital markets and companies. We also conduct training programs to financial sector professionals on a wide array of technical issues. We are India's most credible provider of economy and industry research. Our industry research covers 86 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 5,000 primary sources, including industry experts, industry associations and trade channels. We play a key role in India's fixed income markets. We are the largest provider of valuation of fixed income securities to the mutual fund, insurance and banking industries in the country. We are also the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today the country's largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete objectivity. We leverage our deep understanding of the macro-economy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. Our talent pool comprises economists, sector experts, company analysts and information management specialists.

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Last updated: August, 2014

DisclaimerCRISIL Research, a division of CRISIL Limited (CRISIL) has taken due care and caution in preparing this Report based on the information obtained by CRISIL from sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a recommendation to invest / disinvest in any company covered in the Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL’s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in their regular operations, obtain information of a confidential nature. The views expressed in this Report are that of CRISIL Research and not of CRISIL’s Ratings Division / CRIS. No part of this Report may be published / reproduced in any form without CRISIL’s prior written approval.

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