“COMPREHENSIVE APPROACH TOWARDS MARKETING TREASURY PRODUCTS TO THE INSTITUTIONAL SEGMENT”

PROJECT CARRIED OUT AT “AXIS BANK”

MANINDRA BAHARADWAJ , ROLL NO:- 3

RESEARCH OBJECTIVES

Understanding the Market Dynamics of various sectors like Mutual Funds, Insurance , All India Financial Institutions, Pension Fund/Provident Funds /Gratuity.

Finding the untapped clients in the segment to whom treasury products can be targeted and understanding the clients needs & accordingly expanding the product bouquet to the segment.

Analyze other peer banks treasury products offering to the segment.

RESEARCH METHODOLOGY

In this project the information is mostly taken from websites like IRDA, SEBI, RBI etc and reports like Indian Mutual Fund Industry:- (The Future in a dynamic environment outlook for 2015, by KPMG) etc. Also views have been taken from project guide and by arranging meetings with clients like:-

REGIONAL PROVIDENT FUND LIC PENSION FUND TATA MOTORS (TREASURY) TATA INVESTMENTS GIC INVESTMENT SBI MUTUAL FUND TATA MOTORS (INVESTMENTS) GIC PENSION FUND & GRATUITY CELL SEAMEN’S PROVIDENT FUND ETC.

MARKET DYNAMICS OF INDIAN INSURANCE INDUSTRY

INDUSTRY STRUCTURE

MINISTRY OF FINANCE

Insurance Regulatory Development Body (IRDA)

Life Insurance

Public

Private

Non-Life Insurance

Public

Private

Type of Business

Public Sector Private Sector Total

Life Insurance 1 22 23

Non-Life Insurance

6 16 22

Re-Insurance 1 0 1

Total 8 38 46

Source:- IRDA

India is the 5th largest insurance market in Asia with total premium of INR 295780 crores in FY (2009-10).

Total premium underwritten by insurance sector is increased by 17.3% from FY 2009 where total premium is Rs 252143 crores.

Total Premium increased at a CAGR of 14% during year 2007-08 to 2009-10

2007-08 2008-09 2009-100

50000

100000

150000

200000

250000

300000

350000

229174252143

295780

Total Insurance Premium

2007-08

2008-09

2009-10

(Rs in Cr)

Source: indiareport.com

LIFE INSURANCE MARKET

Recorded a premium income of Rs 261025 crores during FY (2009-10) growth of 18% from previous financial year.

Private Life Insurance companies premium continued to rise in FY(2009-10) which surged to 33% from 29.08% in FY (2008-09).

Among top players in terms of total life insurance premium are ICICI Prudential, Bajaj Allianz, SBI Life, HDFC Standard, Birla Sun Life etc.

Source: IRDA

Total Life Insurance Premium

2008-09 2009-10

Public Sector 157288 176000

Private Sector 64503 85025

Source: economictimes.indiatimes.com

18.30%

16.40%

11.60%10.30%

8.40%

7.70%

4.80%22.50%

Market share amongst Private Players (FY 2009-10) based on new business Premium

SBI Life

ICICI Prudential

Bajaj Allianz Life

Reliance Life

HDFC Standard Life

Birla Sun Life

Max New York Life

Others

70.92%

29.08%

Percentage Wise Distribution ofTotal Life Insurance premium

(FY 2008-09)

Public Sector

Private Sector

67.42%32.58%

Percentage Wise Distribution of Total Life Insurance premium

(FY 2009-10)

Public Sector

Private Sector

Market Share of Public Sector has decreased by 3.5% in FY (2009-10)

But overall the Market Share is dominated by the Public Sector.

Source: IRDA Data

NON-LIFE INSURANCE MARKET

Recorded a Premium income of Rs.34755 crores exhibted growth of 14.5% from previous financial year.

Among the top Public players in terms of total Non-Life insurance premium are New India Insurance, National Insurance etc.

Top Private players include ICICI Lombard, Bajaj Allianz etc

Source: IRDA Data

Total Premium Non-Life Insurers 2008-09 2009-10

Public Sector 18030 20528

Private Sector 12321 14227

Total 30351 34755

59.40%

40.60%

Percentage wise distribution of Total Non-Life Insurance premium

(FY 2008-09)

Public Sector

Private Sector

59.06%

40.94%

Percentage wise distribution of Total Non-Life Insurance premium

(FY 2009-10)

Public Sector

Private Sector

Market Share of Public Sector has slightly decreased by 0.34% in FY 2009-10

Again Non-Life Insurance market is dominated by the Public Sector.

Source: IRDA Data

INSURANCE PENETRATION

Insurance Penetration is the important indicator of the potential and performance of the insurance sector.

Insurance penetration is defined as the ratio of premium underwritten in a given year to the gross domestic product (GDP).The insurance penetration is 4.6% in 2009.

At the present time when the economy is growing the personal disposable incomes also rises. The increased income levels of the people flow into various sectors of the economy and for building up assets (both physical and financial) for themselves. Therefore people look for risk mitigating tools like insurance. Therefore insurance penetration also increases.

KEY FINDINGS

The Insurance Industry is getting more fragmented as new players are taking away the market share of existing players.

Banks themselves have started entering alliances with insurance companies to underwrite insurance products rather than merely distribute them.

Industry is dominated by Public Sector in both life and non-life insurance sector.

Total Life Insurance Premium increased at a CAGR of 14% and Non-Life Insurance Premium increased at a CAGR of 12% during the year 2007-08 to 2009-10 which is faster than our GDP growth rate.

MARKET DYNAMICS OF INDIAN MUTUAL FUND INDUSTRY

2007 2008 2009 20100

5

10

15

20

25

30

35

40

45

3235

3842

Growth in the No. of AMCs

2007

2008

2009

2010

Asset Management Co. AUM IN CR Percentage share to Total AUM

Reliance Capital AUM 110,413 14.7%

HDFC AUM Co. Ltd 88,780 11.8%

ICICI Prudential AUM Co. Ltd.

80,989 10.8%

UTI AUM Co. Ltd. 80,218 10.7%

Birla Sun Life AUM Co. Ltd. 62,343 8.3%

Mutual Fund Industry currently consists of 42 players that been given regulatory approval by SEBI.The Industry is very fragmented as top 3 AMCs account for 37.3% market share.As at the end of March 2010 , the total AUM is Rs. 747525 crores, increasing AUM growth by 51.5% from previous financial year.

TOP 5 AUM COMPANIES IN FY (2009-10)

Source: AMFI Data

Corporates/Banks/Fis

FIIs HNIs Retail0%

20%

40%

60%

80%

100%

55% 1.1% 22% 21%

54% 0.8% 19% 27%

Industry Segmentation

2010

2009

33%

51%

3% 13%

Percentage wise distribution of Schemes

Equity

Debt

Balanced Schemes

Liquid/Money Market

Industry has significantly high ownership from Institutional InvestorsIncreasing participation from Retail Investors due to strong Equity market performance.Debt products dominate the product mix.New Product Categories such as Exchange Traded Funds (ETFs), Gold ETFs has gradually gaining popularity.As of March 2010, ETF & Gold ETF comprises of 0.41% of total AUM.

Source: AMFI Data

MARKET SHARE OF PLAYERS AS ON MARCH 2009 &2010

16.00%

11.70%

10.40%

9.80%9.50%

5.30%4.60%

32.70%

AUM March 2009

Reliance Mutual Fund

HDFC Mutual Fund

ICICI Prudential Mutual Fund

UTI Mutual Fund

Birla Sunlife Mu-tual Fund

SBI Mutual Fund

LIC Mutual Fund

Others

14.70%11.80%

10.80%

10.70%8.30%5.60%

5.00%

33.10%

AUM March 2010

Reliance Mutual Fund

HDFC Mutual Fund

ICICI Prudential Mutual Fund

UTI Mutual Fund

Birla Sunlife Mu-tual Fund

LIC Mutual Fund

SBI Mutual Fund

Others

In March 2010, the top 5 AMCs had a 68% share of the Industry’s assets which was increased from 58% recorded in March 2009.The top 10 AMCs industry’s share rose to 80% in March 2010 from 79% in March 2009.

Source: AMFI Data

KEY FINDINGS

Mutual Fund Industry is very fragmented as top three AMCs account for 37.3 % of market share.

The growth rate of AUM is even faster 34% compared to the insurance sector.

High margin products such as equity and select debt products likely to continue to contribute a significant share of industry AUM.

Emerging product categories such as ETFs, Commodity funds (Gold), have marginal share of AUM inspite of rapid growth.

MARKET DYNAMICS OF INDIAN PENSION/PROVIDENT FUND/GRATUTIY INDUSTRY

The Indian Pension Fund Market for FY 2009 stood at Rs. 3,17,500 crores.

Pension Market is highly under penetrated as of an estimated workforce of 321 million only 13% is covered by pension schemes.

Total pension assets are 6% of India’s GDP

78.70%

15.70%

2.60%1.40%1.00%

Pension Fund Asset Distribution FY 09

EPF,EPS,EDLI

Private Pension Schemes

PPF

Defense

NPS

Source: KPMG Analysis

Personal & Group pension products offered by Life Insurers are regulated by IRDA and those offered by Mutual Funds are regulated by SEBI.

Schemes like EPF, EPS & EDLI are regulated by EPFO & schemes like NPS are regulated by PFRDA.

Public Sector entities in Pension Fund market are LIC Pension Fund, SBI Pension Fund, UTI retirement solutions.

Private Sector entities are ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund , Reliance Capital Pension Fund.

STRUCTURE OF PENSION FUNDS

A DC plan wherein benefit post retirement depends on the return of an individual portfolio generates.

A DB plan wherein employee benefit is calculated on the basis of individual duration at work & his salary drawn

Voluntary Schemes include PPF which is operated by government, pension plans of LIC & private life insurance companies.

Classification of Pension Market

Defined Benefit

EPF NPS

Voluntary Pension Scheme

Defined Contribution

EPS NPS

PPF &

Defenc

e Pension

STRUCTURE OF PROVIDENT FUNDS

Provident Fund Trust

Private Trust (Recognized by I.T

Follow Guidelines under Ministry of Finance

Recognized Private Trust

U/S 17 (1) (a)

Exempt

Exemption to an estt. as a whole

Follow Guidelines

Under Ministry of

Labour

U/S 17 (2) Para 27- (a)

Partially Exempt

Exemption to a class of employe

es

Source: EPFO

KEY FINDINGDS

The Pension Fund Industry is highly under penetrated with only 13 percent of working population having some kind of pension for retirement.

The market is largely dominated by Defined Contribution plans. A large portion of the overall pension assets are still contributed

from schemes under EPFO. Competition from financial products such as mutual funds,

insurance, shares which are more attractive for investments as they provide higher returns and liquidity, have grown at a much faster rate as compared to provident and pension products.

Entry of large number of private pension players like ICICI Prudential pension fund AMC, Reliance capital pension fund etc provide more options for investments as more products will be pushed over the counter.

MAJOR ALL INDIA FINANCIAL INSTITUTIONS

National Bank for Agriculture and Rural Development (NABARD). Small Industries Development Bank of India (SIDBI). National Housing Bank (NHB). Life Insurance Corporation of India (LIC). General Insurance Corporation of India (GIC). Industrial Finance Corporation of India (IFCI). Industrial Investment Bank of India (IIBI). Power Finance Corporation Limited.(PFC) Indian Railway Finance Corporation Limited (IRFC). Export-Import Bank of India.(EIBI) Infrastructure Development Finance Corporation Limited. (IDFC) Indian Renewable Energy Development Agency Limited. (IREDA)

PRODUCT SEGMENTATION OF INSTITUTIONAL SEGMENT

Institutional Segment

T-Bills

SDL

Certificate of Deposit

Commercial Papers

Derivatives

Term Deposit

G-Sec

Insurance

X

Mutual Funds

Pension/Provident Fund/Gratuity

X X X

All India FinancialInstitutions

X X

TREASURY PRODUCTS OF AXIS BANK

Government Securities:- It is a tradable security issued by the Central Government or the

State Governments. Such securities can be short term (usually called Treasury Bills, with

orginal maturities of less than 1 year) or long term (usually called Government Bonds or dated securities with original maturity of one year or more).

Treasury Bills:- Are short term debt instruments issued by the Government of

India and are presently issued in three tenors, viz., 91 days 182 days and 364 days

These are zero coupon securities and pay no coupon. They are issued at a discount and redeemed at the face value at maturity.

The return to the investors is the difference between the maturity value or face value and the issue price.

State Development Loans:- Are issued by the State Governments and RBI coordinates the

actual process of selling these securities The coupon rates on State Development Loans are marginally

higher than those of GOI-Secs. The State Development Loans are sold through the auction process.

All the auctions are multiple price auctions (in a Multiple Price auction, the successful bidders are required to pay for the allotted quantity of securities at the respective price / yield at which they have bid

CERTIFICATE OF DEPOSIT:- It is a promissory note issued by a bank in form of a certificate

entitling the bearer to receive interest. The certificate bears the maturity date, the fixed rate of interest and

the value. Its term ranges from three months to five years and restricts the

holders to withdraw funds on demand. However, on payment of certain penalty the money can be withdrawn on demand.

The returns on Certificate of Deposits are higher than T-Bills because it assumes higher level of risk.

TREASURY PRODUCTS

AXIS BANK ICICI BANK HDFC BANK

Government Securities

Treasury Bills

State Development Loans

Fixed Deposit

Derivatives

Issuing & Paying Agent

Forex Remittances

TREASURY PRODUCTS & SERVICES OF BANKS

RECOMMEDATIONS

Advisory services to PF/Gratuity/Pension Fund for their Investments.

Single Point relationship for all treasury products. Dedicated relationship management team in other center apart

from existing Mumbai & Delhi. Bank can also look at providing advice to new Institutional segment

like SMEs to help manage their funds.