# Presentation: 239478

## Doing Business in India

**Doing Business in India**
**The Big Picture**
**A Banker’s Perspective**

- US – India Business Summit
- November 29, 2006

- Dr. Anil K Khandelwal
- Chairman & Managing Director
- Bank of Baroda

## Indian Economy – A Snapshot

**One of the fastest growing in the world**
**Consumption growth fuelling economic growth – consumption expenditure forming 78% of GDP**
**Services sector contributing over 60% to GDP**
**Emerging as a  hub of manufacturing excellence. new growth engines of Indian economy include IT, ITes, pharmaceuticals, bio-technology,  nano technology, agri. businesses**
**Where forces of competition are at work**
**Innovation driving enterprises**
**Economic reforms well on course – entering second phase   ****  ****    **

## “Inclusive growth” occupying central place
High untapped potential in rural / agri - economy 
Indian companies on acquiring spree and going global
Indian companies pursuing global best practices and producing world-class managers

**High untapped potential in rural / agri - economy **
**Indian companies on acquiring spree and going global**
**Indian companies pursuing global best practices and producing world-class managers**

**Indian Economy – A Snapshot**

## Improved Ranking on Business Front

**World Bank – IFC Report on Doing Business in India for 2007 has given a higher rank to India compared to last year because :**
**-****	****India has cut the time to start a business from 71 to 25 days**
**Reduced the Corporate Income Tax rate from 36.59% to 33.66%**
**Supreme Court’s decision has made enforcing collateral simpler – easing access to credit**
**Reforms to Stock Exchange Regulations have toughened investor protection**

## The Indian Financial  Sector

**Robust financial system**
**Well established institutions**
**Strong supervisory system**
**Progressive integration of financial markets  - banking, insurance, mutual  funds, securities, commodities**
**High competition  marked  by innovation **
**High technology absorption**
**Rediscovery of the Indian customer**
**21****st**** century customer driving innovations in banking**
**Banking plus financial services becoming the new offerings**

## The Indian Financial  Sector

**Alternate e-delivery channels becoming popular with Indian customers**
**Financial sector bracing to meet life cycle and life style needs of the great Indian middle class**
**“****Cradle to Grave” becoming the new spectrum of life cycle needs**
**Banking graduating beyond traditional boundaries of vanilla banking**
**Indian customer demanding**** ****TOTAL FINANCIAL SOLUTIONS**
**Banking sector bracing itself to offer customized and structured products**

## The Indian Financial  Sector

**Banking sector entering newer areas like wealth management, private banking, doorstep banking, electronic banking, credit cards, investment advisory services, etc.**
**Indian banks in a war game to acquire and retain customers**
**Indian middle class being reached out and  wooed by banks **
**Indian middle class and financial sector beginning to dream together and weave a new bond of relationship**
**Financial products like mutual funds, life policies, non-life policies competing with traditional banking products**
**Banking sector fully geared for helping Indian middle class realize its dream**
**Banking sector in good health – with low non-performing assets and prudential accounting standards in place**
**Indian banking entering the phase of consolidation ****(2****nd**** Phase of Reform)**** – on  way to acquire global size**

## Robust & Resilient Banking Sector

**A free & open banking sector where most businesses are now covered at the market-determined rates**
**Full banking license system**
**Highly Stable Sector despite a series of Exogenous Shocks like the Asian Crisis, Sanctions due to Nuclear Explosions, Record High Oil Prices and Large Corrections in Stock Markets**
**Significant improvement in the Asset Quality: Net NPAs (%) have decreased from 8.1% at end-March 1997 to 2.0% at end-March 2006 despite tightening of prudential norms**
**Capital Adequacy Ratio (%) of the banking sector has increased from 10.4% at end-March 1997 to 12.8% at end-March 2006**
**Operating Expenses of SCBs have declined from 2.1% of Total Assets in 1992 to 1.8% in 2005 indicative of improved efficiency**
**Intermediation costs of SCBs have declined from 2.9% in 1995-96 to 2.1% in 2005-06**

## Indian Banks – in good health...

**Strong Regulatory & Supervisory system**
**RBI has strengthened prudential norms with respect to income recognition, disclosures and capital adequacy**
**India complies with BIS 26 norms of best practices of supervisory criteria, country risk & convertibility**
**Indian banks are well on road towards BASEL II compliance**
**Credit Deposit Ratio is increasing – PSB : 66.2%, Pvt. Banks : 76.3%**
**Bank credit is growing by about 30%**
**Indian banks compare favourably with its Asian peers in asset quality**
**Indian banking sector grew  by 6 times in the last decade – from Rs. 5,984 bn in 1995 to Rs. 36,105 bn. **
**KYC norms and Anti Money Laundering regulations in force**
**Indian banks are serving the “Two Faces” of India – the Underprivileged, the Progressive & the Opulent – with equal aplomb**

**Indian Banks – in good health...**

## Indian Banks – in good health...

**Indian Banks – in good health...**

**About 70000 strong branch network – More than 60% presence in Rural areas**
**Consistent growth in profitability – Spread is getting healthier – from 3.1% in 2004-05 to 3.2% in 2005-06**
**NPL Ratios compare favourably with global trends **
**Consistently out-performing stock indices – Total Return to Shareholders continues to be attractive**

**PSU Banks     : 61.2%**
**India Banking : 51.3%**
**Old Private     : 40.0%**
**New Private    : 33.9% **

**TRS Apr 01 – Apr 05**

**PSBs       :   72%**
**Pr.Bks     :   19%**
**Fgn. Bks.:     7%**
**Others include UCBs, RRBs, LABs & NBFCs**

**Spread    :  3.2%**
**CAR         : 12.0%**
**ROA         :  1.0%+**

**Gross NPA : 3.34%**
**Net NPA      : 2.00%**

## Banks – Major Financiers of Growth

**India has one of the strongest financial sector with low systemic risk**
**Upturn in economic activity is mirrored in the sustained growth in “Demand for Bank Credit”**
**Bank credit has increased sharply from 30% of GDP at end-March 2000 to 48% at end-March 2006**
**Non-food credit by SCBs increased by an average of 26.1% between 2002-2006 versus its long-term average of 17.8% from 1970 to 2006**
**Deployment of credit is quite broad-based with increasing flows going to infrastructure , SMEs, agriculture and retail sector (especially residential mortgages) during the past three years**

## Indian Banks in the Best of the League of Asian Peers

_**According to Moody’s Investor Services Analysis : **_
**Indian lenders have highest Return on Equity (ROE) in Asia (20.38%), followed by Indonesia (20.19%), New Zealand (18.83%), Japan (-6.42%)**
**Average gross bad loans as share of total loans – India (8.18%), Philippines (15.05%), Thailand (13.08%), China (11.80%) and Malaysia (9.73%)**
**Cost to Income Ratio in India at 44.56% is in line with the best regulated Asian countries like Singapore (44.15%), Taiwan (42.61%) and Hong Kong (40.05%)**

## Banking Regulations

Credit & Recovery

Payment Systems

Communications & Infrastructure

**Credit & Recovery**
**Payment Systems**
**Communications & Infrastructure**

**Deregulated Interest rate**
**Greater freedom to banks **
**Significant steps towards Full capital**
**Account Convertibility**
**SARFAESI Act 2002**
**Debt Recovery Tribunal (DRT)**
**Real Time Gross Settlements(RTGS)**
**Electronic Clearing System (ECS)**
**Electronic Fund Transfer (EFT)**
**Cheque Truncation - in the pipeline**
**Internet Banking, E-Banking, On-line**
**Tax Payment / Utility Payments,**
**ATM, Mobile Banking**

**Requirements**

**Fulfillments**

**Financial Sector Reforms – Going Ahead**

## Capital Norms

Credit Information

Financial Track record

Other Regulatory Initiatives

**Credit Information**
**Financial Track record**
**Other Regulatory Initiatives**

**-     Min. Capital @ 9% as against 8% by BIS**
**Indian Banks are ahead in Basel II readiness – implementation road-map targets March 2009**
**Min. Capital requirement for entry set @ Rs. 3 bn. for all banks in private sector**
**Credit Information Bureau of India Ltd**
**List of defaulters on RBI website**
**-     No financial crisis – escaped contagion effect of South East Asian meltdown**
**-    Strong Regulatory Practice & Prudence in place for “Managing Affluence”**
**Regulatory provisions to bring NBFCs & UCBs under uniform prudential norms**

**Area**

**Status**

**Significant Steps for Improvement...**

## Overall banking sector is growing by – 18%

- Retail Sector (CAGR – 5 years)
- 	- Housing  Loan             : 50.%
- 	- Consumer Durables    : 16%
- 	- Credit Card 	           : 45%
- 	-  Two Wheeler Loan     : 31%
- 	- Car Loans                    : 26%
-   	- Other Personal Loans : 38%

**Indian Banks are on a high growth track...**** **

**More than 25% of the Bank Loan Assets are in Retail sector ensuring high returns - likely to cross Rs. 5700 bn by 2010**

## Indian Banks are on a high growth track... 

**Growth of e-Commerce Transactions**

**Estimated 4.6* million Indian Internet users are Banking Online today **
**Indians paying bills online is expected to increase from the current 0.3 million in 2005-06 to 1.8 million by 2007-2008. **
**E-commerce transactions will cross the Rs 2000 crore mark (2006-2007) which translates into an increase of over 300% from financial year 2004-05. **

**Indian Banks are on a high growth track... **

## Doing Business in India ... 

**Is there any Untapped Potential in Indian Financial Market ?**
**What is the ‘Big Picture’ ?**

**Doing Business in India ...**** **

## The Big Picture... 

**Consumer Loans / GDP(%)**

**Mortgages / GDP(%)**

**Credit Cards / GDP (%)**

**Other Retail Loans / GDP (%)**

**Consumption boom in India**

**In each of the area, huge untapped potential left**

**The Big Picture...**** **

## The Big Picture... 

**Mutual Funds as a % of GDP**

**Global Investment Fund Asset Pool**

**Low Penetration – Indian industry still in early stages**

- Source : CLSA Asia Pacific Markets

**The Big Picture... **

## The Big Picture... 

- Source : Swiss Re Report 2005

**Insurance Penetration – Global Landscape**

**Non Life premium/ GDP (%)**

**Insurance density (US$ premiums per capita)**

**Low Penetration – A large potential still untapped **

| Country | Life  | Non Life |
| --- | --- | --- |
| UK | 3287 | 1311 |
| Japan | 2954 | 790 |
| France | 2474 | 1093 |
| US | 1753 | 2122 |
| Australia | 1366 | 1203 |
| South Korea | 1211 | 495 |
| Malasiya | 188 | 95 |
| India | 18 | 4.5 |
| China | 13 | 16 |
| Indonesia | 10 | 10 |

**The Big Picture...**** **

## The Big Picture... 

**Growth of ATMs in India**

**Increasing trend of Plastic Spend**
**High Technology Banking Products**
**Need for value added services on card products**

**Larger Number of Access Points for Customers**
**Convenience to customer is the key**
**Shared network is the future**

**Growth of Credit and Debit Cards in India**

**The Big Picture...**** **

## India - one of 10 fastest-growing population of HNWIs globally

- There are at least **23 **Indian citizens amongst the richest people on the planet
- Non Resident Indians can invest in all Indian Asset Classes
- No. of HNWIs in India – 100,000  (19.3% growth in 2005)
- Salary increases in India – **13.9%** is the highest in the world
- Increasing Investment avenues – Art, Realty Funds, Commodities
- Penetration level of **wealth management services in India - 10%** in comparison to European markets (60-90%)
- The number of companies listed on the Bombay Stock Exchange, at more than **6,000, is second only to NYSE**.
- Each year **2,500 tonnes of gold** is mined (fifth of the world's gold output.)  and **3,500 tonnes** is consumed, of which **1,000 tonnes is consumed in India** alone.

**Wealth Management  & Private Banking – New Growth Opportunities... **

## The Big Picture... 

**India is fast emerging as the “Back Office” of the World & the “Global Knowledge Hub”**

**The Big Picture... **

**100 Global Companies outsource from India**
**Top Global Banks are present in India**
**Largest talent pool **
**World class educational / professional institutions**
**Increasing Trade activities **
**Cost of operations – low**

## The Story Continues... 

**Savings Rate @ 29% is low – Offers high potential from an increasingly affluent community **
**Less than 40% of Indian household has a bank account**
**Bulging Middle Class – likely to exceed 300 mn**
**Only 2% of the Indian population have insurance cover**
**Less than 1% of the population is actively participating in the Stock market**
**Number of high net worth households (> Rs. 500,000) is likely to grow from 200,000 to 400,000 by 2010 **
**Consumer Finance stands at about 2% to 3% of GDP as compared to 25% in European market**
**Real Estate Market is projected to touch USD 50 bn by 2008**
**SME Sector is catching up fast creating huge prospect of growth**

**The Story Continues... **

## Challenges Ahead....

**Capital Requirements – **to compete with Foreign banks in the post 2009 phase
**Financial Inclusion** – to remove imbalances in economic growth
**Banking Sector Consolidation** – for improving competitiveness – need for a clear road-map for “Managed Consolidation”
**HR Challenges** – Changing working conditions, re-skilling, compensation etc.
- Coping with the massive **technology adoption programme** – change management – from employees’ as well as customers’ perspectives

**Challenges Ahead....**

## Challenges Ahead....

**High intermediation costs**
**Low Productivity**
- Better **Corporate Governance** – higher level of accountability
- Improvement in **productivity and efficiency** in line with advanced markets
- Transformation from Plain Vanilla banking’ to **“multi-specialist”** banking

**Challenges Ahead....**

## Thank You

**Thank You**