Indias Leading BFSI Companies 2014

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IndiasLeading

BFSICompanies

2014


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Dun & Bradstreet

Risk ManagementSolutions

Sales & MarketingSolutions

LearningSolutions

Economic AnalysisGroup


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Indias Leading BFSI Companies 2014

Published in India by Dun & Bradstreet Information Services India Pvt Ltd. (D&B)

Registered OfficeICC Chambers, Saki Vihar Road,Powai, Mumbai - 400072.Tel: +91 22 6676 5555, 2857 4190 / 92 / 94Fax: +91 22 2857 2060

Email: [email protected]: www.dnb.co.in

New Delhi Office1stFloor, Administrative Building,Block E, NSIC - Technical Services Center,Okhla Industrial Estate Phase - III,New Delhi - 110020.Tel: +91 11 41497900/01Fax: +91 11 41497902

Ahmedabad Office001, Samruddhi, Opp. Old High Court,

Near Income Tax Office,Ashram Road,Ahmedabad 380014.Tel: +91 79 27540558/59, 27541131Fax: +91 79 27540560

Editor Pawan Bindal

Sub-Editor Yogesh Jambhale, Rohit Singh

Editorial Team Omesh Kandalkar, Mihir Shah, Swatti Mathur, Karishma Desai, Sneha Talreja,Dipshikha Biswas, Rohit Pawar, Prashant Mirgule, Sudhir Rewale

Sales Head Jayesh Bahadur

Sales Team Nittin Maheshwari, Apoorba Kumar Patranabish, Anandita Pongurlekar, Vini Batheja,Kartik Rao, Vaibhav Dhote, Sunena Jain, Neetu Dhamija, Rupit Kar, Romita Dey Talukdar,Avishek Tiwari, Mayank Bhanu, Shubhra Upadhyay, Anubha Garg, Sujata Bhakat,Tanya Bedi, Nitin Chaudhary, Praveen Malladi, Rakesh Goyal, Vishwa Desai,Aisha Rashyani, Ankur Singh, Yashaswini Chandrashekar

Operations Team Nadeem Kazi, Kunal Panchamiya, Sumit Sakhrani, Rajesh Gupta, Shankar Iyer,Parmeshwar More

Design Team Mohan Chilvery

All rights reservedThis publication is copyright and all rights are reserved. Apart from any fair dealing for the purpose of private study,research, criticism or review as permitted under the Copyright Act, no part may be reproduced by any process withoutwritten permission. Enquiries should be addressed to the publishers.Although every effort has been made in compiling and checking the information given in this publication to ensure that itis accurate, the authors, the publishers and their servants or agents shall not be held responsible for the continued accuracyof the information or for any errors, negligence or otherwise howsoever or for any consequence arising therefrom.

Indias Leading BFSI Companies 2014

Sixth Edition

ISBN No.: 978-93-82060-32-1

Kolkata Office166B, S. P. Mukherjee Road,Merlin Links, Unit 3E, 3rdFloor,Kolkata - 700026.Tel: +91 33 24650204Fax: +91 33 24650205

Bengaluru OfficeNo. 7/2 Gajanana Towers,

1stFloor, Annaswamy Mudaliar Street,Opp. Ulsoor Lake,Bengaluru - 560042.Tel: +91 80 33163500Fax: +91 80 33163540

Chennai OfficeNew No: 28, Old No: 195,1stFloor, North Usman Road,T. Nagar, Chennai - 600017.Tel: 91 44 28142265/75, 42897602Fax: +91 44 28142285

Hyderabad Office504, 5thFloor,

Babukhans Millennium Center,6-3-1099/1100, Somajiguda,Hyderabad - 500082.Tel: +91 40 66624102, 66514102Fax: +91 40 66619358


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Contents

Preface...................................................................................................I

Foreword..............................................................................................III

Executive Summary.............................................................................. V

Methodology..................................................................................... VII

Definitions & Calculations................................................................... IX

Sector OverviewBanks......................................................................................... XV

NBFCs..................................................................................... XXIII

Broking..................................................................................XXXV

Mutual Funds ..........................................................................XLIII

Insurance ............................................................................... XLIX

Primary Insights................................................................................. LVIIListing ....................................................................................... L-1 - L-9

Profiles

Banks...................................................................................... 3-41

NBFCs / FIs / Financial Services.............................................. 45-89

Broking............................................................................... 91-108

Asset Management Companies........................................ 111-126

Life Insurance................................................................... 131-145

General Insurance............................................................. 147-165

Abbreviation............................................................................. 167-172

Index ......................................................................................... 175-179


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PrefaceDun & Bradstreet India is pleased to release the sixth edition of its publication

Indias Leading BFSI Companies. The publication aims to provide valuable

information on progress and performance of the leading Indian BFSI sector

companies. The publication also highlights important trends in the BFSI sectorand captures the major factors that provide an impetus to the growth of the

sector and the challenges faced by the sector.

The global economic growth remained weak in FY13 and global risks remained

elevated in view of the prevailing issues high public debt in all major advanced

economic, a fragmented financial system in the euro area and slowdown in

growth in other emerging and developing countries.

In tandem with the global economy, the slowdown in domestic growth which

prevailed during FY12 spilled over to FY13. Belying all expectations of recovery during the second half ofthe fiscal year, the downturn in growth intensified. Indias GDP recorded a decadal low growth rate of 4.5%

during FY13. Persistent inflationary pressures, policy drift, low business confidence and stalled investment

activity, fall in the savings rate and high current account deficit dented the growth momentum. In order to

support growth, the RBI eased its tight monetary policy stance in FY13, reducing the repo rate by 100 basis

points.

India being one of the most populated countries in the world and backed by the growing levels of income,

the BFSI sector is ready to explore ever increasing opportunities at the domestic and international levels.

Changing market dynamics, industry consolidation and globalisation coupled with increased levels of

technology adoption in the sector will be crucial in determining the progress of this sector in the coming years.Leading players have started redefining their strategies through confidence building measures, introducing

innovative financial products and innovative delivery channels to keep pace with international competition.

The publication provides an in-depth analysis of the BFSI sector in India and showcases profiles of leading

players in the banking, NBFC, mutual fund, broking and insurance industries. We at D&B are extremely

optimistic about the progress of this sector and will continue to track it and aim to facilitate informed

business decisions. I hope you will enjoy reading Indias Leading BFSI Companies 2014and look forward

to your suggestions.

Kaushal Sampat

President & CEO - India

Dun & Bradstreet


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ForewordI am pleased to announce the launch of the sixth edition of Indias Leading

BFSI Companies, a publication on the Indian banking, financial services, and

insurance (BFSI) sectors, by Dun and Bradstreet India (D&B India).

Past few years have been difficult for the entire BFSI sector due to weakening

domestic macroeconomic conditions and continued sluggish growth in the

global economy. Challenges such as declining asset quality, volatility of earnings

for broking companies due to vagaries of capital markets have significantly

affected the bottom-line of BFSI companies. However, the prudential regulatory

norms have enabled the BFSI sector to remain fundamentally strong and sustain

during such difficult times. Further, the high level of technology adoption has

enabled BFSI companies to increase productivity, improve operational efficiency,

and become more competitive.

The current financial year saw the BFSI sector facing the vulnerabilities of the market forces. High interest

rates, protracted inflationary pressures, and high fiscal deficit impacted demand in this interest-sensitive

sector. However, Indian companies managed to ride through these critical challenges with resilience and

sustain their strong performance. The robust show of BFSI companies in FY13 clearly demonstrates this. Bank

Credit as a percentage of GDP increased from 47% in FY08 to 52% in FY13. The size of total assets of NBFCs

grew at a CAGR of approximately 6% from `990 bn in FY08 to `1,322 bn in FY13, despite reduction in the

number of NBFCs in India. The total premium garnered by the Life Insurance segment grew at a CAGR of 7%

between FY08 to FY13. The share of private players in total life insurance premium increased from 25% in

FY08 to 27% in FY13. Gross direct premium of non-life/general insurance grew at a CAGR of 18% between

FY08 and FY13. The role of private players seems to be more pronounced in the non-life insurance area. Theirshare in total premiums increased from 38% in FY08 to 43% in FY13. The assets under management (AUM)

of the mutual fund industry displayed a CAGR of 7% between FY08 and FY13.

The progress of the financial sector is crucial to Indias economic growth. Financial reforms instituted over

the past two decades have been responsible for the maturing of the sector. The constituents of the real

economy have benefited significantly from this. The publication Indias Leading BFSI Companies 2014

showcases the performance of Indias leading BFSI sector companies.

Further, given D&Bs extensive market reach and global footprint, companies featuring in this publication

would benefit from the attention of global leaders in the financial markets. This publication, besides providing

a comprehensive macro view on important developments in the BFSI sector, would be a ready reference tool

to gain a deeper understanding about the leading companies in Indias BFSI sector.

At Dun & Bradstreet, we will continue to meet your expectations and look forward to receiving your feedback

and suggestions.

Pawan Bindal

Director

Dun & Bradstreet India


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Executive SummaryThe banking, financial services, mutual fund, and insurance sectors are critical

constituents of the Indian financial sector. Dun & Bradstreet (D&B), through its

publication Indias Leading BFSI Companies 2014, highlights the growth and

performance of companies in the BFSI segment in India. The publication profiles

the leading players in the sector that had annual total income of ` 250 mn

and above in FY13. The publication profiles 295 companies this comprises 76

banks, 108 non-banking financial services companies, 51 insurance companies,

28 asset management companies, and 32 broking houses. The publication also

provides an overview of the current trends and prospects of the BFSI sector,

which is divided into four sub-segments banking, financial services, mutual

funds, and insurance.

Some other key findings in this publication include

Aggregate loans and advances of Scheduled Commercial Banks stood at `58,797 bn in FY13 growingnearly 16% against 18% in FY12. Public sector banks had the highest share of 76.1% in total bank

credit. Private sector banks accounted for 19.4% whereas foreign banks made up the balance 4.5%.

Asset quality of the banking sector declined further in FY13. Gross NPA ratio increased to 3.6% in FY13

from 3.1% in FY12. The gross NPA ratio was the highest for public sector banks at 3.8%, followed by

foreign banks at 3%. It was the lowest for private banks at 1.9% in FY13. Further, Net NPA ratio also

increased from 1.3% in FY12 to 1.7% in FY13 for Scheduled Commercial Banks.

In FY13, total assets of NBFCs-D (deposit taking NBFCs) grew 2.2% to `1,249 bn primarily due to 23%

increase in the assets of asset finance companies. On the other hand, the assets of loan companies

declined by around 46%.

The life insurance segment recorded a total premium of `2,872 bn, registering a growth of 0.05% in

FY13 YoY compared with 2% decline in FY12. The Unit Linked Insurance Plans products saw a decline

of 30% in premium income for FY13 while premium income of traditional products grew nearly 10%.

The non-life insurance segment recorded a gross premium income of `629 bn during FY13 as against

`529 bn in FY12, registering a growth of 19% in FY13 compared with 24% growth in the previous

year. Motor insurance with 47% share and health insurance with 22% share in premium in FY13

continue to dominate the non-life insurance segment.

In times of volatile equity markets, investors seem to prefer debt funds, which are perceived to be

safer. As on March 31, 2013, the share of debt-oriented schemes in the total AUM of the industry

stood at 57% compared with 50% in the corresponding period of the previous year.

With focus on ongoing reforms and a strong regulatory environment, the BFSI sector promises sustainable

growth and profitability, going forward. D&B will endeavour to keep track of various developments in this

sector to make this publication emerge as an important and reliable reference tool.

Jayesh Bahadur

Head, Economic Analysis Group and Sales & Marketing Solution

Dun & Bradstreet India


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VII

MethodologyFor the purpose of the publication, Indias Leading BFSI Companies 2014, the BFSI sector has been dividedinto four key segments, viz., banking - only scheduled commercial banks (SCBs) based on the RBI enumerationof SCBs as on Mar 2013; companies providing financial services; mutual funds as registered with Associationof Mutual Funds in India (AMFI); and insurance companies that are registered with Insurance Regulatory andDevelopment Authority (IRDA), in accordance with the Insurance Act, 1938.

The initial selection process of companies involved exploring the companies available in D&B Indias in-housedatabase, companies registered with the respective regulatory bodies and industry associations. The companieswere then contacted through direct mailers, reminder letters, telephone calls, faxes and emails apart frominvitation to participate through advertisements in Indias leading business dailies.The companies and banks having minimum standalone annual total income of `250 mn and above duringFY13 are featured in this publication. Further, subsidiaries and associate companies that have satisfied theeligibility criteria have also been featured. Companies with a negative net worth were eliminated. Also,companies classified under Z category of the Bombay Stock Exchange were excluded. Every effort was madeto ensure that companies respond to the questionnaire. However, in the eventuality that a company has notresponded with critical data, and/or information which is not available in public domain, such companies

have not been included in the publication. This is to ensure that all information contained in this publicationis verified and authenticated.

Information pertaining to SCBs has been primarily sourced and compiled from RBI, IBA, annual reports (ARs)and Websites of banks. Information related to financials and infrastructure of the banks has been takenpurely from various publications provided by the RBI and pertains to Mar 2013. The information pertaining tofinancial services companies, insurers and AMCs has been primarily sourced and compiled from questionnairescirculated and administered by D&B India; and/or as provided by respective regulatory authority (IRDA andAMFI) through its Websites and various publications; and/ or from respective companies Website and ARs.The financial information pertaining to insurers has been taken from IRDAs FY13 AR and public disclosuresof respective insurers. The financial information pertaining to AMCs has been taken from AMFI and theirrespective ARs.

A standardised format has been used for reporting the information on the companies. The editorial team wouldappreciate if readers would keep D&B India regularly updated regarding any changes in their companies, asand when it occurs.

Each company featured in the publication has been allotted its unique identification number (D-U-N-S -Data Universal Numbering System). This will help readers locate and obtain fullfledged informative reportson these companies from the D&B Indias database.

The editorial team is confident that Indias Leading BFSI Companies 2014will prove a useful reference toolfor information on BFSI sector. We would be pleased to receive your invaluable feedback and suggestions,which we can incorporate in the next edition. Your satisfaction remains our goal in D&B Indias journeytowards excellence.


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VIII


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IX

Definitions & Calculations

Calculations

Total Advances = Bills purchased & discounted (Short term) + Cash credits, overdrafts & loans (Shortterm) + Term loans

Total Deposits = Demand Deposits + Savings Bank Deposit + Term Deposits

Total Business = Total Deposits + Total Advances

CASA Deposits = Demand Deposits + Savings Bank Deposits

CASA Ratio (%) = CASA Deposits/Total Deposits *100

C-D Ratio (Credit Deposit Ratio) = Advances/Deposits*100

I-D Ratio (Investment Deposit Ratio) = Investments/Deposits*100

SLR Investments = Investment in Government Securities + Investment in Approved Securities

Statutory Liquidity Ratio (%) = SLR Investments/Total Deposits *100

Net Profit Margin (NPM) = Net Profit/Total Income*100

Net Interest Income (NII) = Interest Earned - Interest Expended

Sensitive Sector Advances = Capital Markets Sector Advances + Real Estate Sector Advances +Commodity Sector Advances

AAUM Growth (Average Assets under Management) = (AAUM CY- AAUM PY)/AAUM PY*100

Total First Year Premiums (FYP) = FYP + Single Premiums

Claims Ratio (%) = Net Claims Incurred/ Net Earned Premiums *100

Total Income for Insurance companies = Premiums earned - net (policy holders account) + Incomefrom Investments (policy holders account) + other income (policy holders account) + incomefrom investments (shareholders account) + other income and miscellaneous receipts (shareholdersaccount)

Data Sources

Total Income for banks taken as per RBI and for other companies as per the ARs (except for Insurancecompanies)

Net Profit/Loss taken for banks as per RBI and for other companies as per the ARs (except for Insurancecompanies)

Total Assets, Net Interest Margin, Business per Employee, Number of ATMs, CRAR - Basel II, C-D Ratioand Net NPA/Net Advances Ratio for banks taken as per RBI

Loan disbursed and number of employees for NBFCs taken as per company ARs

AAUM of mutual funds companies taken from AMFI as per data disclosed by the AMCs.

Total Premiums Earned, Share of Linked business Premiums / Total Premiums, AUM and Solvency Ratio

of Life Insurance companies taken as per the data from IRDA AR 2012-13Net Premiums Earned, AUM, Solvency Ratio and Incurred Claims Ratio of Non-life insurance companiestaken as per the data from IRDA AR 2012-13.

Retention Ratio of Non-life Insurance companies taken from the Public Disclosures documents ofrespective companies

LP Loss to Profit

LL Loss to Loss

PL Profit to Loss

NA Not Available


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XI


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SECTOR OVERVIEW


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BANKS


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XVI

Banks

Indian Banking DevelopmentIndias financial sector has developed considerably over past two decades and also has been able to withstandthe global financial crisis better than any other country. Indian financial sector has traditionally been bankdominated with commercial banks accounting for 60% of the total assets of the Indian financial system. Inthe years ahead, banks are expected to play a much larger role in supporting the productive impulses of the

economy.

Asset quality of Indian banks under growing pressureThe weakening domestic macroeconomic conditions combined with continuing adverse international economicdevelopments and its increasing spill over risks posed major challenges to the Indian banking sector for thesecond consecutive year in FY13. The pace of growth of the Indian banking system has moderated, and therehas been deterioration in asset quality (more perceptibly for public sector banks). The sector witnessed a risein the Non-Performing Assets (NPAs) along with increase in the restructured advances. Weak corporate sectorperformance, risk aversion by banks due to rise in bad debts, regulatory bottlenecks and lower rate of returndue to high inflation led to deceleration in credit and deposit growth which in turn affected the profitabilityof the banks.

However, it was the comfortable capital base which continues to lend resilience to the Indian banking sector.Also, several policy initiatives were undertaken during the year to counter these challenges. The RBI initiateda series of policy measures to enable Indian banks to adopt the Basel III norms and improve asset quality ofthe banks. These measures coupled with issue of new banking licenses will ensure that the Indian bankingsector evolves going ahead and meets the needs of a dynamic real economy.

In FY13, total assets continued to witness subdued growth of 15.1%; foreign banks recorded the lowestgrowthThe overall balance sheet of the Indian banking sector continued to moderate during FY13 primarily led bysharp slowdown in credit growth. The total assets/liabilities of all scheduled commercial banks in FY13 grewby 15.1% in FY13 after growing by 15.8% in FY12 and 19.2% FY11.

The public sector banks had the maximum share of more than 72% in total assets of all SCBs as on Mar2013. While the growth in the asset size of the foreign banks moderately significantly in FY13, growing byonly 5.7% as compared to the 19.8% growth in FY12, the growth rate of the public sector banks in FY13 at15.3% exceeded the growth rate of 14.1% in FY12. Asset size of the private sector banks also moderated to17.5% in FY13 (21.1% in FY12), with the new private sector banks recording a greater moderation than theold private sector banks.


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Banks at a Glance - Operational Performance

Particulars PSBs Private Sector Banks Foreign Banks All SCBs

Key Balance Sheet Indicators (`bn)

Total Liabilities/Assets 69619.67 19898.04 6215.63 95733.34

Deposits 57456.97 13958.36 2880.00 74295.32

Loans and Advances 44727.74 11432.49 2636.80 58797.03

Growth (y-o-y) %

Total Liabilities/Assets 15.3 17.5 5.7 15.1Deposits 14.9 18.8 4.0 15.1

Loans and Advances 15.4 18.3 14.7 15.9

Key Ratios

CRAR Basel II 11.31 15.1 18.76 12.77

Gross NPA Ratio 4.1 2.0 2.9 3.6

Net NPA Ratio 2.0 0.5 1.0 1.7

Credit-Deposit Ratio 77.8 81.9 91.6 79.1

Source: RBI

Sustained economic slowdown and risk aversion dampened credit growth

Indias economy witnessed a decadal growth rate of 4.5% during FY13. The subdued demand in the economyand the risk aversion by banks led to low credit growth in FY13.

Loans & advances by Indian banks decelerated to 15.9% in FY13 as compared to 18.9% in FY12. Data on sectoraldeployment of credit reveals that while credit growth had moderated across all sectors, credit disbursementto the agriculture and allied activities fell at a sharper pace. Within industry, credit to the infrastructure sectorslowed down considerably. While credit growth to micro and small sector grew strongly, credit growth tomedium sector remained almost unchanged from the previous year and credit to large sector slowed downconsiderably. Retail loans in FY13grew strongly by 20% as compared to 15% growth in FY12. While prioritysector credit in grew in FY13, share of credit to priority sectors was lower than the target level.

Investments by banks, although increased marginally, by 17% in FY13 as compared to 16.1% in FY12, it

was due to increase in investments in non-approved securities, while investments in government securitiesmoderated considerably to 15.0%. During FY12, SCBs investment in government securities had grown by19.8%. Outstanding credit deposit ratio remains largely unchanged during FY13 as compared to FY12. Exceptfor the foreign banks and the SBI, the credit deposit ratio for all other categories of banks moderated.

During FY13, while there was a sharp increase in international liabilities of banks located in India, while theinternational assets of these banks remained largely unchanged. Data for International claims of the Indianbanks reflects a shift from banks to the private non-banking sector in FY13. Country wise a shift was alsonoticeable from the US and European economies, such as the UK and Germany towards countries like HongKong and Singapore in South East Asia.


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XVIII

Credit and deposit Growth of SCBs

Source: RBI

Aggregate deposits of SCBs records a higher growth in FY13 as compared to FY12; New private sectorbanks witnesses strong growth while foreign banks deceleratesDeposits that accounted for over 78% of total liabilities of the SCBs in FY13 grew by 15.1% to `74295.32 bn

in FY13. Revival in the growth of current and savings accounts (CASA) supported the growth in the overalldeposits, with the new private sector banks recording the highest growth rate amongst the other categoriesof banks.

The growth in deposits was due to the significant recovery in demand deposits and also considerable growthin savings bank deposits while growth in term deposits moderated. Demand deposits of SCBs had recordeda decline during FY12 led by the decline in demand deposits by public sector banks. Both the public sectorbanks as well as the private sector banks witnessed an upsurge in demand deposits while the foreign banksreported a decline in FY13.

The foreign banks deposits grew merely by 4% during FY13 owing to a decline in demand deposits d strongmoderation in savings banks a term deposits.

Declining NIM and rising operating cost dented profitability for Scheduled Commercial Banks (SCBs)Slowing business environment for banking industry led to decline in the credit off-take for SCBs. Softening inmonetary policy rates during FY13 and slowdown in the growth of advances from 18.1% to 15.9% in FY13decelerated the growth of interest earned for SCBs. Interest earned for SCBs grew 16.5% in FY13 to `7,636.1bn as compared to a healthy growth of 33.4% in FY12. Repo rate has declined from 8.5% to 7.5% during FY13. Investments growth however has moderately accelerated to 16.9% in FY13. Other Income mainly dueto profit on sale and revaluation of investments grew 13.3% to `977.9 bn in FY13. Total Income as a resultgrew at a slowed pace of 16.2% to `8,613.9 bn in FY13.

Private Banks continued to lead the growth for SCBs with 23.7% growth in interest earned, 23% growthin total income, 18.3% growth in advances and 19% growth in Investments. However growth for private

banks on all financial parameters has substantially slowed down compared to FY12. Moderate accelerationin investment growth was mainly due to healthy growth of investments in public sector banks of 16.7% inFY13 compared to 12.8% in FY12.


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XIX

Bank segment wise total income of SCBs

SegmentInterest Earned Other Income Total Income

ìn Bn Growth (%) ìn Bn Growth (%) ìn Bn Growth (%)

Foreign Banks 422.5 17.4 112.1 2.9 534.6 14.0

Public Banks 5,548.8 14.5 567.8 12.7 6,116.6 14.3

Private Banks 1,664.9 23.7 297.9 18.9 1,962.8 23.0

Total 7,636.1 16.5 977.9 13.3 8,613.9 16.2

Source: RBI and D&B Research

Softening in monetary policy rates in FY13 led to slowdown in the growth of Interest expended to 19.4%from 44% in FY12. The deceleration in interest expended was despite faster pace of deposits of 15.1% inFY13 compared to a growth of 14.9% in FY12. Banks borrowed cautiously in slowing economic environmentdecelerating its pace to 19.8% in FY13 compared to a growth of 24.9% in FY12. Operating expenses grew13.8% in FY13 mainly due to 11.9% growth in employee cost. Provisions and contingencies grew 8.5% forFY13 mainly contributed by 22.5% growth in provisions for NPAs.

Net Interest Margin (NIM) for SCBs declined 10 bps to 2.8% in FY13. Declining NIM and rising operating costdented profitability growth of SCBs. Net profit for SCBs grew 11.6% to `816.6 bn compared to a growth of16.1% in FY12. Net profit growth continued to be led by private banks which registered a healthy growth of

27.6% followed by 22.9% growth by foreign banks in FY13. Deceleration in profit growth impacted Returnon Equity for SCBs as it declined to 13.8% in FY13 compared to 14.6% in FY12.

Bank segment wise net profit of SCBs


SCBs continued to be well-capitalised despite a marginal decline in CRARCapital adequacy norms play a crucial role in determining financial stability and operating efficiency of thebanking system. The capital to risk-weighted assets ratio (CRAR) under Basel II of SCBs remained well abovethe stipulated 9% for all bank groups during FY13, suggesting Indian banks are well-capitalised and in the

short-to-medium term, SCBs are not constrained by capital in extending credit.


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CRAR for SCBs, however, declined moderately in FY13 to 13.9% from 14.2% in the previous year. The core CRAR(Tier I) under Basel II also witnessed a moderate decline to 10.3% in FY13 from 10.4% in FY12. The decline incapital positions at the aggregate level was due to the decline in the capital positions of PSBs.

During FY09-FY13, the GoI has infused `477 bn in PSBs. The GoI will further infuse `140 bn in PSBs duringFY14. Thus the deterioration in the capital position of PSBs is worrisome on account of the fiscal repercussionsof capital infusion in PSBs.

CRAR as per Basel-II norms attained by PSBs stood at 12.4% in FY13 as against 13.2% in FY12. In comparison,private banks maintained a higher Basel II CRAR at 16.8% in FY13 as it increased from 16.2% in FY12. Foreignbanks registered the highest CRAR of 17.9% in FY13 which grew from 16.8% in FY12.

The Basel III capital regulation has been implemented in India effective from Apr 1, 2013 which will be fullyimplemented in a phased manner by Mar 31, 2018. The Basel III norms will improve risk management systemsand governance and make banks more capital efficient, thereby, improving banking sectors ability to absorbshocks arising from financial and economic crisis. Infusion of bank capital will facilitate banks to improve itscore business of lending for further growth.

However, though Indian banks are well-capitalised with an overall CRAR of 13.5% as on June 30, 2013; toadopt Basel III norms PSBs alone will require an additional capital of `4.15 trillion, of which equity capitalwould be of `1.4 - 1.5 trillion, while non-equity capital would be of `2.65 - 2.75 trillion; leading to fiscalburden of Basel III to maintain Government ownership. Nonetheless, as PSBs adopt the Basel III framework,the quantity and quality (common equity) of capital needs to be enhanced, while addressing the increasingcredit requirements of the economy.

The Indian banking sector in near term is confronted by the challenge to support economic recovery throughenhanced credit off-take.

Asset quality of SCBs continue to remain stressed under persistent adverse macro-economicconditionsThe non-performing assets of Indian banks continued to remain a great concern, with gross NPAs as apercentage of gross advances increasing significantly from 3.1% in FY12 to 3.6% in FY13. On the other hand,

Net NPAs as the percentage of net advances grew from 1.3% in FY12 to 1.7% in FY13. (Please refer charttitled Gross NPA and Net NPA ratio of Scheduled Commercial Banks (SCBs)). Prevailing slowdown in thedomestic economy, declining business confidence in the industry due to slackening demand, prevailing highinterest environment, and high exposure of Indian banks, especially public sector banks, to the real estate,textile, infrastructure (specifically power and telecom segments), in addition to the priority sector are few ofthe reasons for the substantial increase in NPAs during FY13. The doubtful assets of the SCBs increased by729.5% in FY 13 compared to 17% in FY12, indicating the deteriorating assets quality of Indian SCBs.


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XXI

Gross NPA and Net NPA ratio of Scheduled Commercial Banks (SCBs)


Deterioration in asset quality was more pronounced in case of public sector banks. The gross NPA ratio ofpublic sector banks grew from 2.32% in FY11 to 3.8% in FY12. Although the gross NPAs of public sectorbanks have grown consistently from 2.10% in FY09, they recorded a steep increase in FY12, growing from

2.32% in FY11 to 3.17% in FY12. Similarly, the net NPA ratio of the public sector banks increased from 1.09%in FY11 to 1.80% in FY13.

On the other hand, private sector banks have been able to reduce their NPAs during the same period. Afterregistering a steep growth in gross NPA ratio in FY09, which grew from 2.75% in FY08 to 3.25% in FY09, thegross NPAs of private sector banks reduced consistently from 3.25% in FY09 to 2.08% and FY12 and furtherto 1.90% in FY13. Net NPA of the private banks though declined from 1.29% in FY09 to 0.46% in FY12,registered a marginal growth in during FY13.

Gross NPA ratio of the foreign banks that had reduced from 4.30% in FY09 to 2.54% in FY11, registered inmarginal growth in FY12 and grew significantly during FY13. The Net NPA ratio of foreign banks that declinedfrom 0.67% in FY11 to 0.61% in FY12, due to excessive provisioning of NPAs, increased to 1.00% during FY13.

Foreign banks increased their NPA provisioning by 271% in FY12 over FY11 leading to a decline in Net NPAs.However, a reduction in their NPA provisioning by 48% during FY13 impacted their net asset quality therebyleading to an increase in their Net NPA ratio.

Although all banks are taking adequate measures to control NPAs, there has been fresh accretion of NPAsduring FY13, as captured by the slippage ratio, which increased from 2.5% in FY12 to 2.7% in FY13. With theimplementation of Basel III underway, the banking norms especially, the norms for NPAs are set to becomemore stringent and in the near-term, Indian banks would have to devise innovative ways for reducing theirNPAs rather than resorting to provisioning of their bad assets.


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Non-Banking Financial Companies

Sectoral Overview - NBFCsNBFCs are non-banking companies carrying business of a financial institution. These institutions are engagedin the principal business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issuedby government or local authority, other securities of marketable nature, leasing, hire purchase, insurancebusiness and chit business. The institutions whose principle business is that of agricultural activity or anyindustrial activity or sale, purchase or construction of immovable property, do not fall under the definitionof NBFCs. Unlike commercial banks, NBFCs cannot accept demand deposits, cannot write checking facility,and cannot issue cheques to the customers. NFBCs operate largely in vehicle financing, hire purchase, lease,personal loans, working capital loans, microfinance, consumer loans, housing loans, loans against shares,investments, distribution of financial products, etc.

Classification of NBFCs

Liabilities based classification:On the basis of liabilities, NBFCs are classified into two categories (i) NBFCs-Deposit taking (NBFCs-D) and(ii) NBFCs-Non-Deposit taking (NBFCs-ND). NBFCs-D are subject to requirements of capital adequacy, liquid

assets maintenance, exposure norms (including restrictions on exposure to investments in land, building, andunquoted shares), ALM discipline and reporting requirements, whereas in contrast, until 2006 NBFCs-ND weresubject to minimal regulation.

Business based classification:The NBFCs, depending upon its nature of business, are broadly categorized as loan companies (LC), investmentcompanies (IC), infrastructure finance companies (IFC), asset finance companies (AFC), core investmentcompanies (CIC), infrastructure debt funds (IDF), micro finance institutions (MFI), and factors. NBFCs-IDF andNBFCs-MFI were created in FY12 and were brought under a separate regulatory framework. NBFCs-Factorswere introduced in Sep 2012.

During FY13, the non-banking financial sector witnessed further consolidation as the number of Non-Banking

Financial Companies (NBFCs) operating in the economy declined.

Size based classification:Among NBFCs-ND, companies with asset size of `1 bn and more have been categorised as systemicallyimportant NBFCs-ND (NBFC-ND-SI), and those with asset size of not more than `1 bn have been categorisedas non-systemically important NBFCs-ND.

NBFCs that form a significant segment of the shadow banking system play an important role in broadeningaccess to financial services and enhancing competition and diversification of the financial sector. NBFCs haveemerged an important intermediary for financing and have provided strong competition to banks and financialinstitutions. The regulatory and supervisory framework for NBFCs has been continuously strengthened in orderto ensure their strong and healthy functioning, limit excessive risk-taking practices, and protect the interests

of the deposit holders. In lieu of this, RBI has issued proposed draft guidelines for NBFCs in Dec 2012, basedon the recommendations of the Usha Thorat Committee, which was set up to review the existing regulatoryand supervisory framework of NBFCs. These proposed guidelines focus on enhanced corporate governance,capital requirement, risk weights, disclosure standards, asset classification and tightened liquidity managementrequirements.

Over the years, NBFCs have become a crucial part of the Indian financial system. The total number of NBFCsregistered with the RBI declined marginally to 12,225 as on end-June 2013 from 12,385 as on end-June 2012


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and 12,409 as on end-June 2011. The number of deposit taking NBFCs (NBFC-D) also reduced from 271 as onend-June, 2012 to 254 at end-June 2013. This reduction in numbers is largely due to migration to non-deposit-taking category and cancellation of Certificates of Registration (CoR). Despite the decline in the number ofNBFCs, their total assets and net owned funds increased marginally. The size of total assets of NBFCs grewonly by 1.8% from `1,298 bn as on March 31, 2012 to `1,322 bn (P:provisional) as on March 31, 2013. Netowned funds of NBFCs too grew merely by 0.40% from `249 bn on end-March 2012 to `250 bn (P) on end-March 2012. Public deposits of NBFCs also grew by 6% and stood at `106 bn (P) as at end-March 2013.

In FY13, total assets of NBFCs-D sector grew by (provisional) 2.2% to `1,249 bn primarily due to an increasein the assets of Asset Finance Companies (AFCs) whereas the assets of Loan Companies declined by around46%. During the same year, total assets of NBFCs-ND-SI registered a 19.5% increase as loans and advances,which formed a major part of the assets, increased by 22%

Funding source of NBFC sectorFunding source of NBFCs comprises of debentures, borrowings from banks and FIs, public deposits, commercialpapers and inter-corporate loans. In FY13, borrowings from banks and FIs, followed by debentures, constitutedan important source of funds for NBFCs-D. Borrowings from banks and FIs accounted for 42.3% and debenturesaccounted for 37.5% of the total borrowings of NBFCs-D in FY13. Debentures form an important sourceof funds for NBFCs-ND-SI. In FY13, debentures accounted for 47% (P) and borrowings from banks and FIsaccounted for 30% (P) of the total borrowings of NBFCs-ND-SI.

Sources of Funds of NBFCs-D Application of Funds of NBFCs-D

Source: RBINote: P denotes Provisional


As at the end of FY13 balance sheet size of NBFC-D stood at `1,249 bn registering an marginal increase ofaround 2.2% on a y-o-y basis. As of March-2013, more than two-thirds of NBFCs-D sectors total assets wereheld by AFCs. Component wise, the advances accounted for a predominant share of the total assets, followedby cash and bank balances. Borrowings, a major source of funding, grew by 3.4% and public deposits which aresubjected to credit rating, continued to increase, with around 25% growth. However, borrowings from banks

which constitute the biggest source of funding for NBFCs-D, albeit declined, during FY13. Borrowings fromFIs picked up significantly by 200% during the year while borrowings from government and inter-corporateborrowings declined substantially by 22% and 25% respectively during FY13. However, total Investmentscontinued to register a 2.7% decline mainly on the back of a decline in investments in equity shares and incommercial paper. The ratio of public deposit to net owned funds improved marginally and stood at 32% asat end-March 2013, as against 26% as at end-March 2012.


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Sources of Funds of NBFCs-ND-SI Application of Funds of NBFCs-ND-SI


The balance sheet size of NBFCs-ND-SI as at end-FY13 stood at `11,177 bn, as against `9,353 bn as at end-FY12, indicating 19.5% growth. Secured borrowing constitutes a major source of borrowings for NBFCs-ND-SI

and grew by 19.4% during FY13. Unsecured borrowings of NBFCs-ND-SI, constituting slightly less than halfthe total borrowings, expanded significantly and outpaced the growth in secured borrowings during FY13.The leverage ratio of the NBFCs-ND-SI sector increased marginally to 3.2% during FY13. On the deploymentside, loans and advances continue to constitute the largest share, followed by investments and hire purchaseassets. During FY13, loans and advances grew 22.0% on account of 26.1% growth in secured loans andadvances. Hire purchase assets grew 22.8%, and investments grew by 12.8%.

NBFCs-D demonstrated a marginal increase, while NBFCs-ND-SI demonstrated deterioration in theirfinancial performanceDuring FY13, total income (TI) of NBFCs-D grew marginally by 5% to `188 bn and expenditure grew by7% to `138 bn. Thus, net profit of NBFCs-D increased marginally by 3% to `34 bn in FY13 compared with`33 bn in FY12. Even though the net profit of NBFCs-D showed marginal improvement, RoA remained at

the previous years level at 2.7%. In view of increased costs, cost-to- income ratio of the NBFCs-D also roseduring the year.

Financial Performance (`bn)

ParticularsNBFCs-D NBFCs-ND-SI RNBC

2012 2013 P 2012 2013 P 2012 2013 P

Total income 179 188 988 1,246 3.32 3.14

Operating Profit (PBT) 50 50 N.A. N.A. 1.67 1.69

Net profit (PAT) 33 34 171 222 1.1 1.2

Total Assets 1,222 1,249 9,353 11,177 75.43 73.14

Ratios in %

Income as % of total assets 14.6 15.0 10.6 11.2 4.4 4.3

Net Profit as % of total assets 2.7 2.7 1.8 2.0 1.5 1.6

Cost to Income Ratio 72.2 73.4 75.40 74.64 50.00 46.18

Source: RBINote: P stands for Provisional, N.A. not available


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Total income of NBFCs-ND-SI registered 26.1% increase to `1,246 bn, while expenditure increased by 24.8%to `930 bn. As a result net profit of NBFCs-ND-SI grew significantly by 28.9% to `222 bn in FY13. Net profitas a percentage to total income as also to total assets increased marginally during the year.

In FY13, total income of RNBCs declined by 5.4%, but as the decline in expenses exceeded the decline in totalincome, operating profit of RNBCs increased marginally by 1.2%. However, net profit of RNBCs increased by9.1% due to decline in provision for taxation.

Captive NBFCs, NBFCs focusing on sensitive sectors and gold loan companies proposed to maintainTier I of 12%, as other NBFCs proposed to maintain 10%Currently, NBFCs-D and NBFCs-ND-SI are required to have minimum Capital Adequacy Ratio (CRAR) of 15%as against 9% in case of banks. Consequently, Tier l capital cannot be less than 7.5% for these NBFCs and forNBFCs-IFCs Tier l capital cannot be less than 10%. Similarly, NBFCs primarily engaged in lending against gold

jewelry have to maintain a minimum Tier l capital of 12% w.e.f. Apr 01, 2014.

However, as per the proposed RBI guidelines, w.e.f. Apr 1, 2014, all captive NBFCs (90% and above of totalassets (net of intangibles) are on financing parent companys products/services) and NBFCs that are engagedin lending to sensitive sectors like capital market, commodities, and real estate will have to maintain the TierI capital of 12%. Other NBFCs including IFCs, shall maintain Tier l capital at 10%. It is also proposed that riskweight for NBFCs that are not sponsored by banks, should be 125% for commercial real estate exposure and150% for capital market exposure.

Over the years, the NBFC sector has undergone a fair degree of consolidation leading to the emergence ofcompanies having larger asset size. Capital adequacy norms that were mandatory for NBFCs-D were madeapplicable to NBFCs-ND-SI too in 2007, considering their growing importance in the segment and to ensuretheir sound development. As of March 2013, out of 209 reporting NDFCs-D, 206 (P) had CRAR of more than15%, whereas in March 2012, 242 of 246 NDFCs-D had CRAR of more than 15%. In case of NBFCs-ND-SI, 368out of 418 companies had CRAR of more than 15%, indicating an availability of capital for further expansion.Only 12% of reporting NBFCs-ND-SI reported CRAR of less than 15% and almost all of them were eitherinvestment companies or loan companies.

Capital Adequacy Ratio of NBFCs-D (No of companies)

CRAR Range2012-13 P

AFC LC Total

Less than 15% 1 2 3

More than 15% and up to 20% 7 2 9

More than 20% and up to 30% 19 5 24

Above 30% 144 29 173

Total 171 38 209

Source: RBINote: P: Provisional; AFC - Asset Finance Company; LC - Loan Company.


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Capital Adequacy Ratio of NBFCs-ND-SI (No of companies)

CRAR Range2012-13 P

AFC IC IDF IFC LC Total

Less than 15% 1 34 - - 15 50

More than 15% and up to 20% 5 7 - 1 24 37

More than 20% and up to 30% 4 10 - 2 30 46

Above 30% 6 182 1 1 95 285

Total 16 233 1 4 164 418Source: RBINote: P: Provisional;-: Indicates nil.

AFC - Asset Finance Company; LC - Loan Company; IC - Investment Company; IFC - Infrastructure Finance Company; IDF - Infrastructure Debt Fund.

90 day norm for classification of assets by NBFCs proposed by RBIThe period of classifying NPAs in case of the NBFC sector is higher at 180/360 days, as against 90 days incase of banks. However, as per the proposed guidelines issued by RBI, w.e.f. Apr 1, 2014, NBFCs will classifyan account as NPA, if payment is overdue for 120 days and follow the 90 day norm after a year later. Theseasset classification norms have been issued by the RBI to align the norms applicable to NBFCs with the normscurrently applicable to banks. RBI has also proposed to increase the provisioning for standard assets from0.25% to 0.40% of the outstanding amount from Mar 31, 2014 for all NBFCs.

The asset quality of the NBFCs-D deteriorated from the past years level. Weakening of the asset quality ofNBFCs-D followed the trend of rising NPAs in the banking sector. During FY13, gross NPA to total advancesof NBFC-D increased to 2.4% (P) as against 2.2% in FY12. At the same time, net NPAs to net advances alsoincreased to 0.8% compared to 0.5% in FY12. Net NPAs to net advances remained negative for four consecutiveyears during 2008 to 2011, with provisions exceeding the NPAs.

Further, asset quality of asset finance and loan companies deteriorated, as their gross NPA ratio increasedfrom 2.4% and 1.3% in FY12 to 2.7% and 1.5% in FY13 (P). In case of NBFC-ND-SI, both gross and net NPAratio increased from 2.12% and 1.29% in FY12 to 2.20% and 1.09% in FY13 (P).

NPA Ratios of NBFCs

NPA Ratios (%) as at end- March

2010 2011 2012 2013 P

Gross NPAs to Total Advances 1.3 0.7 2.2 2.4

Net NPAs to Net Advances # # 0.5 0.8

Source: RBINote P: Provisional, #: Provisions exceeded NPA

NPA Ratios of NBFCs-ND-SI

NPA Ratios (%) as at end- March

As at end

Mar-12 Mar-13 P

Gross NPAs to Gross Advances 2.12 2.2

Net NPAs to Net Advances 1.29 1.09

Gross NPAs to Total Assets 1.54 1.63

Net NPAs to Total Assets 0.93 0.8

Source: RBINote P: Provisional


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Policy measures for NBFCs

During FY13, various policy measures were introduced to improve the regulation and supervision ofNBFCs

New category of NBFC created - During 2012-13, a new category of NBFC,viz., Non-Banking FinancialCompany Factors was created and a regulatory framework in the form of entry point capital and prudentialregulations was placed on them.

Revised norms on lending against gold by NBFCs- NBFCs lending against collateral of gold jewellery advisedby the RBI to maintain a loan-to-value (LTV) ratio not exceeding 60% and to disclose in their balance sheetsthe percentage of such loans to their total assets. If the loans extended by a NBFC comprise 50% or moreof its financial assets, it shall maintain a minimum Tier-l capital of 12% by April 01, 2014. All NBFCs wereadvised that no advances should be granted by them for purchase of gold in any form, including primarygold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of goldMutual Funds.

Revisions to Guidelines on Fair Practices Code for NBFCs- The Fair Practices Code has been revised toinclude sector specific features to enhance transparency and fair practices relating to micro lending and lendingagainst collateral of gold in the light of operational issues surrounding these activities

Margin caps for Non Banking Financial Company-Micro Finance Institutions (NBFCMFI) revised Themargin cap for lending by NBFCs-MFI irrespective of their size stands at 12% till March 31, 2014. With effectfrom April 1, 2014, the margin cap shall not exceed 10% for large MFIs (loans portfolios exceeding `1 billion)and 12% for others.

Other measures that were taken are

Guidelines issued for Core Investment Companies venturing into insurance business

Directions issued to CICs regarding overseas investment

Guidelines issued with respect to private placement by NBFCs

Besides, the Reserve Bank of India also clarified that it does not regulate chit fund activities or CollectiveInvestment Schemes (CIS). It regulates only those NBFCs that conduct financial activity as their principalbusiness and that it has authorised only a few of them to accept deposits and such entities do not enjoyDICGCs deposit insurance facility.

OutlookNBFCs have been playing a crucial role in terms of the macroeconomic perspective as well as strengtheningthe structure of the Indian financial system. Consolidation in the sector and better regulatory framework forNBFCs has helped them become more focused. However, in the real world of competition, NBFCs have tofocus more on their core strengths and must constantly endeavor to search for new products and services inorder to survive and grow constantly.


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Broking

Vibrant equity and debt market have been currently growing at a steady pace as compared to some of itspeers in the global market. Domestic savings and investment plays a critical role in the Indian capital marketsand fight backs to channelise the maximum savings into the financial system, thereby increasing the depthof the markets. Regardless of the global economic downturn, Indian capital markets have done well in the

last decade and have managed to achieve a balanced inflow of funds from FIIs and DIIs.

Gradual move in distribution pattern of household savings during FY10-13The volume and composition of domestic savings in India have undergone changes in the past few years.Domestic savings are mainly derived from three sources - public sector, private sector and households. Thesavings rate stood close to 23.8% in FY01 and exceeded ever since to reach 30.7% in FY13. However, itdisplayed a descent from 33% in FY10 to 30.7% in FY13. The decline in savings rate coupled with the changein distribution pattern of household savings has had an adverse impact on the flow of funds into the securitiesmarket.

Households have accounted for nearly three-fourth of the gross domestic savings during the last few yearsgrowing at 10.7% CAGR during FY10-13. Share of savings of the private corporate sector has seen a steady

growth of 23.4%, registering CAGR of 9.7% during FY10-FY13. The public sector accounted for an averageshare of around 3.8% of the gross household savings.

Segment-wise % share of domestic savings

Source: D&B Research, RBI Source: D&B Research, RBI

Within household savings, the share of financial savings vis--vis physical savings has been declining in therecent years. Financial savings such as bank deposits, shares and debentures and life insurance funds haveseen a declined trend from FY10 at 35.5% to 22.4% in FY12 but witness a slight increase in share to 23.6% inFY13. Conversely, physical savings such as gold witnessed an ascending trend in share from 39.2% in FY10 to50.2% in 2012 but recorded a slight decreased to 49.1% in FY13. Negative returns on deposits in real termsdue to high inflation and sharp slide in stocks, have led to reallocation of financial savings to non-productiveassets such as gold, bullion, or land.

Primary equity markets

Resource mobilisation moved in line with the savings and investment rates during FY09-13In FY13, total resources mobilized through the primary market stood at `324.6 bn, out of which the bondmarket drove the majority. The resource mobilized moved in line with the savings and investment rates of theeconomy. In FY13, when the savings and investment rates fell to 30.7% and 34.6% respectively, the resourcemobilized through the primary market saw a fall from `484.7 bn in FY12 to `324.6 bn in FY13, a contraction

of nearly 33%.


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The corporate bond market which was dormant in FY09 started increasing substantially as it provides thecorporate sector with a secure source of funding. Share of resources mobilized through bonds increased frommere 9.2% in FY09 to 53.3% in FY13. Similarly, on a yearly basis, in absolute terms resource mobilizationthrough the bond market also saw an appreciation from FY09 to FY12 but registered a decline in FY13.

Resource mobilisation

Source: SEBI, Economy Survey 2012-13

Primary markets recorded lackluster growth in terms of resource mobilisationIn FY13, primary market activities were subdued and the decreasing number of public issues from 68 in FY11to 53 issues in FY13 reflected the effect of this lull. During the same period, resource mobilized from publicand rights issues witnessed a sizable fall by 33.1% to `324.6 bn compared to `484.8 bn in FY12.

Resource mobilisation through private and right issues

Source: SEBI

The resource mobilisation in the primary market through IPOs increased marginally to `65.3 bn through 33equity issues during FY13, compared with `59 bn mobilised through 34 issues in the last financial year.

Although there was slight decline in number of equity public issues to 33 in FY13 (34 in FY12 and 53 in FY11),resource mobilisation through public issues from bonds/NCDs saw an outstrip from 10 in FY11 to 20 in FY13.This change of preference towards debt market was mainly observed due to low risk hunger emanating frompoor/negative returns on a number of IPOs and a fairly volatile secondary market.

Industry-wise classification reveals that financial companies/institutions raised the maximum amount ofresources during FY13. The share of finance companies was 51% of the total resource mobilised. The numberof issues for financial sector was the highest in FY12 and FY13 at 18 and 16 respectively. Telecom industrywith its remarkable IPO issue garnered 12.9% of the total resource mobilisation whereas banks had a relativelylesser share of 7.1% in FY13 compared with 42.3% in FY12.


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Share of resources mobilised by private sector grew to more than 20%As per SEBIs sector-wise classification, 55 private sector and 14 public sector issue mobilised resources throughthe primary market during FY13 compared with 60 private sector issues and 11 public sector issues in thepreceding year. The share of private sector in total resource mobilisation jumped from 29.5% in FY12 to 54.5%,amounting to `176.9 bn in FY13. On the other hand, resource mobilised by the public sector declined from70.5% in FY12 to 45.5% amounting to `147.7 bn in FY13.

QIP issue sees sizable growth in 2012-13Qualified institutions placement (QIP) was introduced to minimize the excessive dependence on foreignmarkets. Hence to facilitate quicker resource mobilisation by companies from institutional investors in thedomestic market, listed companies resorted to QIP.

Resource mobilisation through QIP

Source: SEBI

Since its inception, a large number of companies have utilized QIP for raising the much needed funds asevident from the above chart. In FY13, issuers raised `159.96 bn through 45 QIP issues compared with`21.6 bn raised through 16 issues during 2011-12. This was mainly due to guidelines issued by SEBI, which

required listed companies to achieve and maintain public shareholding share at 25% by June 2013 therebyencouraging resource mobilisation through this route.

Secondary equity marketsSensex and Nifty both depicted an uphill trend of 8.2% and 7.3% respectively in FY13. The BSE Sensex gained1432 points in FY13 compared with 1740 in FY12. The CNX Nifty also increased 387 points in FY13 over 5269in FY12. The equity market showed signs of recovery owing to IPOs and FIIs being turned as net investors inIndian market during FY13.

Indicators of the equity market

Particulars FY09 FY10 FY11 FY12 FY13

Indices (Annual Average)

BSE Sensex 12,365.6 15,585.2 18,605.2 17,423.0 18,836.0

S&P CNX NIFTY 3,731.0 4,657.8 5,583.5 5,243.0 5,520.0

Annualised Volatility (%)

BSE Sensex 43.6 29.2 21.1 20.2 12.5

S&P CNX NIFTY 41.5 29.4 21.4 20.4 12.9

Market Cap (`bn)

BSE 30,860.8 61,656.2 68,390.8 62,149.4 63,878.9

NSE 28,961.9 60,091.7 67,026.2 60,965.2 62,390.4

P/E Ratio

BSE Sensex 13.7 21.3 21.2 17.8 16.9

S&P CNX NIFTY 14.3 22.3 22.1 18.7 17.6

Source: SEBI


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The market capitalisation of all listed companies on the BSE indicated an upturn trend as it increased at CAGRof 19.9% during FY09-13 to reach `63,878.9 bn. At NSE, market capitalization of all listed companies for endof FY13 grew at 21.1% CAGR amounting to `62,390.4 bn.

The valuation of the shares can be gauged from the P/E ratio. During FY13, there was a moderation in theP/E ratio compared with the preceding year. P/E ratio of the BSE Sensex and the S&P CNX Nifty stood at 16.9and 17.6 compared with 17.8 and 18.7 respectively at end of FY12.

The volatility measured by the annualized standard deviation witnessed considerable downfall in FY13 comparedwith FY12. Annualized volatility of the BSE Sensex decreased from 20.2% in FY12 to 12.5% in FY13. Similarly,the same trend was observed in the NSE CNX Nifty, which decreased from 20.4% in FY12 to 12.9% in FY13.

Selected sectoral indices and their returns

Year CNX IT%

variationCNXBank

%variation

CNX PSE%

variationBSE Oiland Gas

%variation

BSEFMCG

%variation

FY09 2319 -55.3 4133 -22.2 2454 -1.2 7053 9.9 2036 17.1

FY10 5856 152.6 9460 128.9 3766 53.5 10159 44 2831 39.1

FY11 7148 22.1 11705 23.7 3567 -5.3 10241 0.8 3596 27

FY12 6516 8.8 10213 -12.8 2900 -18.7 8088 -21 4493 24.9

FY13 7219 10.8 11362 11.3 2748 -5.2 8329 3 5919 3

Source: SEBI

Although the benchmark indices saw an upsurge, the trend in returns generated by the sectoral indices varied.Among the major sectorial indices at the BSE and NSE, all the indices have seen an upward trend except theCNX PSE index. Better corporate earnings and improved economic environment led to increase in the indicesof major sectors. The CNX Bank indices saw the highest improvement recording a rise of 11.3%, which hadearlier declined by 12.8% in FY12. This was followed by CNX IT at 10.8% and BSE Oil & Gas and BSE FMCGat 3% each.

Market capitalisation-to-GDP ratio have shown downfall for three consecutive yearsMarket cap to GDP ratio is monitored to estimate the extent of development of the stock market. The marketcap is important as the market is interrelated with the facility to mobilize capital and spread risk. For pastthree consecutive years since FY11, market cap to GDP ratio has shown a declining trend from 87.7% in FY10to 63.7% in FY13. Similarly, the NSE also witnessed the same trend as the BSE, from recording a decline of86% in FY11 to 62.2% in FY13 mainly owing to domestic slowdown and sinking returns by the exchanges.

Market cap to GDP ratio

Source: SEBI

One can measure market liquidity through the traded value to GDP. This is the ratio of value of the sharestraded to GDP (at current market prices). The all India cash turnover to GDP ratio declined to 32.5% in FY13

from 38.8% FY12. However, in the derivatives segment there was a jump in the turnover to GDP ratio from358.3% in FY12 to 385.9% in FY13


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Derivative market in IndiaOver the years, development of products and technology along with stiff competition mainly led to a steadyincrease in the presence and role of OTC and exchange traded derivatives in India. These instruments are animportant component of the overall strategy of the financial sector.

Demand growth of the derivatives market has outperformed equity cash market in 2013During FY09-13 total turnover (cash and derivatives) at the NSE and BSE has increased by CAGR of 29.7%.Trading in the cash segment has seen a declining trend from FY10, while trading in the derivatives segmenthas seen a manifold growth over the years at CAGR of 36.9% during FY09-13, indicating rising preferencetowards trading in the derivatives segment mainly owing to buoyant markets. Higher turnover converts intomore brokerage and thus, boosts the securities market.

Total turnover at BSE and NSE

Source: SEBI, D&B Research

During FY13, the total number of contracts traded in the derivatives market by NSE declined by 6.1% on the backof weak investor sentiment in the midst of global and domestic slowdown. Conversely, at the BSE the numberof contracts rose substantially as these were mainly driven by the incentives offered by the exchange.

During FY13, the value of contracts traded in the derivatives market of the NSE recorded a paltry growth of0.6% whereas the derivatives market of the BSE jumped by 786.1%.

Index option derivatives dominate the share in turnover at the BSE and NSEThe product composition of the derivatives market has undergone a drastic change in the past decade.Prior to FY07, futures in general and single stock futures, used to dominate the derivatives product in Indiawith an average of nearly 58% share in the total derivatives turnover. However, recently, the Indian marketsare dominated by index options with 77% share during FY13. Share of single stock futures have declinedover the years and now constitute merely 10.9% in FY13. Share of index futures constitutes around 6.8% ofthe derivatives turnover in FY13 whereas single stock options saw an increase from 3% in FY12 to 5.2% inFY13.

Net inflow from FIIs and mutual funds shows contrarian investment position in FY13FII investments in the Indian market have maintained momentum with funds continuing to flow into thedomestic market. Net inflows from FIIs have shown an upward trend from FY10. However, an abrupt reversalin trend was observed in 2012 owing to the widening of financial woes in the US and the UK markets and highinflation leading to poor inflows in the country. During FY13, net investment made by FIIs in India stood at`1,683.7, a jump of more than 75% from FY12 when it was `937.3 bn. This was the highest net FII inflowsin any year since the FIIs were permitted to invest in the Indian market.


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Trends in FII investments Trends in mutual fund investments

Source: SEBI Source: SEBI

The composition of net FII inflows shows that majority of the FIIs inflows were largely driven by equity inflows(around 82% share of total inflows) which remained buoyant, signifying FIIs confidence in the performanceof the Indian economy. This has been a trend over the past three years except for FY12, which noticed a drop

in the net FII inflows into the equity markets. In FY13, the net FII inflows into the equity market increasedremarkably by 220.2% reaching `1,400.3 bn whereas net FII inflows into the debt market witness a fall ofaround 43% during the same period.

Traditionally, mutual funds have been dominant investors in the debt market rather than the equity markets.During FY13, the combined net investment by mutual funds in both debt and equity segments stood at`4,507.1 bn compared with `3,334.6 bn in FY12, accounting for 35.2% increase. Since FY10, there has beenoffloading of investment by mutual funds from the equity markets. Equity markets have been net sellers tothe tune of `227.5 bn in FY13 whereas the debt segment rose to `4,734.6 bn in FY13 compared with a yearago period.

The Way Ahead

The Indian capital market, though placed more favorably than its counterparts, is burdened with certainchallenges in terms of increased access, product complexities, identifying risk management issues and speedof regulatory reform.

Some of the major initiatives taken by the GoI was the SME platform, which was dedicated for listing andtrading of SME securities thereby, providing a push to the SME sector. This platform was extended to smalland medium sized companies with high growth potential whose paid-up capital would be less than or equalto `0.3 bn. It assists in providing SMEs with easier access to equity finance for expansion and lower costof compliance post listing. As of FY13, 24 companies have been listed on the SME platform raising around`2.4 bn.

Launch of the MCX Stock Exchange (MCX-SX) is the other initiative taken. This exchange was a step to provide

investors with wider choice of investment and risk management products that match with diverse risk profilesand investment appetites. Initially, equities of 1,116 companies have been admitted for trading.

Thus, a way forward for the Indian capital markets means that they need to be tuned in to adjust to theconstantly evolving developments in the financial services sector with focus on product innovation, continuedintegration of technology, financial literacy and awareness, regulatory reforms, flexible bond market and afavorable environment for the FIIs.


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Mutual Funds

IntroductionOver the years, the Indian mutual fund industry has evolved from a single player market in 1963, with theformation of Unit Trust of India (UTI), to a highly competitive market comprising domestic and foreign players,supported by favorable regulatory reforms. The mutual fund industry in India has grown at a significant pace,

registering CAGR of more than 17% in terms of assets under management (AUM) between FY06 to FY13.This growth is driven by several factors such as rising income levels, favorable demographics structure, lowpenetration levels, favorable policies, increasing investor awareness and booming economy among others.

Mutual Fund industry clocks double-digit growthThe mutual fund industrys performance is largely dependent on the macroeconomic environment. When theIndian economy was growing at an average of 9% during FY05 to FY08, the mutual fund industry registeredan average growth of 50% in terms of AUM during the same period. However, after witnessing several yearsof persistent growth, the industry recorded a 17% fall in AUM during FY09, led by the impact of the globalfinancial crisis when Indian economic growth moderated to 6.7%. With the sings of economic recovery, theAUM rebounded in FY10. However, the recurrence of fresh global economic and European sovereign debtconcerns impacted investor sentiments yet again, causing MF investors to book profits and exit from theschemes during FY11 and FY12. This led to fall in AUM by 3.5% y-o-y in FY11 and a 0.8% y-o-y fall duringFY12. Improved market sentiments have however helped mutual funds AUM soar by 19.5% to `7,014 bnin FY13.

Trend in AUM

Source: AMFI

Investor base erodesEven as the industrys AUM increased, an erosion of investor base continued into FY13. Investor base went

down to 42.82 mn folios* as on Mar 13 from the previous years figure of 46.45 mn. This was primarily dueto equity funds which saw reduction in number of folios by 4.4 mn, while the debt segment saw an additionof 0.89 mn folios. The reduction in the number of folios can be attributed also due to redemption coupledwith the scheme mergers and folio de-duplication exercise carried by Registrar and Transfer (R&T) agents.

Folios in mutual funds mainly comprise folios of retail investors. Equity Funds has higher retail participationthan the debt funds as the former has the ability to deliver higher returns that can beat the inflation. Theongoing volatility in the equity market led to a fall in retail equity oriented folios in FY13. During the sameperiod, retail folios in debt oriented funds gained by over 6 lakhs folios. This can be attributed to investorslooking at relatively safer investment options. Declining interest rates also saw retail investors adding giltfunds to their portfolio with retail folios in this category almost doubling in one year from 26,222 folios asof Mar 12 to 51,763 folios as of Mar 13. A noteworthy positive for the mutual fund industry is that informed

high net worth individuals# (HNIs) are making a comeback to the industry. HNI folios under gilt category rose


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from 4,038 folios as of Mar 12 to 7,231 as of Mar 13. HNIs now hold 32% of the assets in such funds, upfrom 10% in FY10. HNIs assets in debt mutual funds have also jumped from 20% in FY10 to 35.7% in FY13.HNI holding in equity funds for the same period has stagnated at around 20%.

Bias towards debt continuesThe distribution of AUM continues to be heavily skewed towards debt. After a strict interest rate regimethrough 2010 and 2011, the RBI eased its monetary stance in Apr 12. It cut its benchmark lending rate - therepo rate - by a total of 100 bps between Apr 12 and Mar 13.The price of a debt instrument and interestrates (yields) move in opposite directions, i.e., price of the bond rises when interest rates fall and vice versa.Accordingly, long term debt oriented funds benefit from a fall in interest rates and attract more AUM. In ascenario of declining interest rates, long-term debt funds emerged as an appropriate tool of investment. DuringFY13, investors adopted a cautious approach and turned their attention towards relatively safer investmentsby directing their investments into the debt bucket that invests in securities such as corporate bonds, moneymarket instruments and G-secs. This has contributed to the growth of AUM in this category (including liquidschemes) to `4,974. 51 mn as on Mar 13, representing an increase of 32.7% (y-o-y). Corporates had a shareof over 50% in the AUM of debt oriented funds.

Category-wise AUM

Source: AMFI

The equity-oriented schemes faced redemption pressures due to profit-booking by the investors duringpositive market rallies. This is reflected in the fact that, while the BSE Sensex gained around 8% during theFY13, the industry AUM of equity funds fell by about 5%. Net outflows from equity funds totalled `145.87mn in FY13.

Corporates continued to dominate mutual fund AUM with a 46% share in March 2013 while HNIs with a 28%share were the second biggest AUM contributors followed by retail investors with 23% share.

AUM by Investor Type (%)

Source: AMFI


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Gold ETFs losing sheenTraditionally, Indian investors have favoured investing in the physical form of gold. As the awareness aboutthe benefits of exchange-traded funds (ETFs) such as convenience, purity, and safety has been increasing, thisasset class is rapidly drawing investor attention. During FY13, AUM of gold ETFs reported a 17.8% growthy-o-y to `116.5 bn. Even as retail investors continue to be primary drivers (552463 accounts) and registeringa 20% growth in FY13 in terms of AUM, there has been a rising interest among HNIs for these funds. From2,649 HNI accounts in FY10, gold-ETFs reported a total of 11664 HNI accounts in FY13.

Over the past few quarters, however, Gold ETFs seems to have lost its sheen amongst investors owing toglobal and domestic factors. Assets in Indian gold ETFs overall have fallen to their lowest level in two years,to `87.84 bn at the end of Dec 13.

Low level of Customer AwarenessMajority of the Indian households invest over 50% of their savings in bank deposits, followed by insurance(16%) and pension funds (14%). Rest (15%) is shared by various market-linked instruments like shares,debentures, mutual funds and others. One of the major challenges in channelizing their household savings tomutual funds is the lack of awareness about such financial products. A majority of investors in Tier 2 cities aswell as metros lack understanding of mutual fund products and can draw little distinction in their approachto investing in mutual funds and direct stock market investments. As a result, they are generally unwilling toundertake even minimal risk.

Mutual fund yet to spread its reach beyond MetrosThe present geographical concentration of the total AMCs tell a revealing story.The AUM of top 15 citiesaccounted for more than 85%. The penetration of top 5 metros namely Mumbai, Delhi, Bangalore, Kolkata,and Chennai increased to 74% in Mar 13 as against 71% in Mar 12, whereas for cities beyong the top five,penetration has decreased. Even within the top 5 metros, Mumbai alone accounted for nearly 42% share. Thisis primarily due to limited distribution channels and limited investor awareness beyond these cities. This alsounderlines the huge untapped market opportunity from the rural India, beyond these major cities.

AUM-Geographical Distribution (as of Dec 13)

Source: AMFI

The industry is focusing on improving the penetration ratio and increasing its presence in other cities. With anaim to expand the reach of MFs to tap beyond the urban landscape of the 15 major cities, market regulatorSEBI and the Government has taken certain key steps for the benefit of the mutual fund industry:

SEBI has allowed MFs to charge up to 30 percentage points of additional TER (Total Expense Ratio) - a feecharged to investors for MF investments under fund management and other heads - if the new inflowsfrom beyond top 15 cities are at least 30% of gross new inflows in the scheme or 15% of the averageassets under management (year to date), whichever is higher.

In a bid to enhance customer awareness towards mutual funds, SEBI has mandated Asset ManagementCompanies (AMCs) to set aside at least 2 basis points of their daily net assets annually for the investor

education campaign. AMCs should also make disclosures on educating investors and enhancing theirawareness.


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SEBI has advised AMCs to make complete disclosures in their half yearly report to SEBI regarding theefforts to increase geographical penetration and the details of opening of new branches, especially thosebeyond top 15 cities.

SEBI has asked MFs to provide a separate plan for direct investments i.e., investments not routed throughdistributor, in existing as well as new schemes. Such separate plans shall have a lower expense ratioexcluding distribution expenses and commission, and no commission shall be paid from such plans.

A new cadre of distributors, such as postal agents, retired government and semi-government officials(class III and above or equivalent) with a service of at least 10 years, retired teachers with a service of at

least 10 years, retired bank officers with a service of at least 10 years, and other similar persons (such asBank correspondents) as may be notified by AMFI/AMC from time to time, shall be allowed to sell unitsof simple and performing mutual fund schemes.

SEBI has allowed cash transactions in mutual fund schemes to the extent of `20,000 to enhance thereach to small investors.

The Government introduced Rajiv Gandhi Equity Savings Scheme (RGESS) for first time equity investorwith annual income less than or equal to `1 mn. They will be eligible for a 50% tax deduction underSection 80 CCG (new section) on investments upto `50,000 in pre-defined stocks, close-ended mutualfund schemes (listed) and ETFs besides public offerings from selected government companies.

Increasing role of public sector in distribution of MF productsUntil now, banks played a limited role in the distribution of mutual fund products, however, gradually, theyare enhancing their focus on distribution of such products to boost their fee income and move up the valuechain. As banks, especially nationalised banks, have a large customer base, it offers a significant opportunity toAMCs to tap their huge customers base beyond the top 15 major cities. Further, along with the banks, AMCsare also leveraging the extensive reach of the Indian postal services. India post, with a very large customerbase and branches spread across urban and rural India, acts as a ready network for mutual fund distribution.Currently however, it is not fully utilized, and it sells MF products through a little over 200 designated postoffices. The postal department has kept one AMFI qualified personnel at each of the designated post officesto sell MF products. However, the staff needs to be well qualified and trained in order to sell MF products toavoid mis-selling. Thus, as per SEBIs recent regulation, it is compulsory for MF sellers or advisors to clear theNational Institute of Securities Markets (NISM) fund advisors module certificate test. Along with this, theyare also required to register themselves with AMFI.

Retail investors shy away from direct investment plansIn Sep 12, SEBI came out with guidelines to offer direct investment plan (DIP) option to investors, effective Jan2013. The purpose of the regulation is to offer an option to the informed investors to plan their investmentson their own. Following the guidelines, AMCs have launched DIPs. Under this plan, investors can invest directlyby either submitting the requisite documents personally at the AMCs office or through the AMCs onlineplatform or through various service centers.

The plan has met with reasonable success so far. While some well-informed investors like corporates and HNIshave made the shift to direct plans, retail investors have adopted a wait-and-watch approach. Retail investorstoo could start shifting to these plans as awareness about the benefits of these plans increases. For the majorityof retail investors, intensive education initiatives from all stakeholders as well as strong advisory support are

needed. For the new breed of investors (from tier II and tier III towns), distributors would need to lead till theIndian mutual fund industry reaches a reasonable level of penetration and investor education.

Future OutlookThe low penetration level of domestic AMCs as well as limited share of mutual funds in the household financialsavings point towards the future potential of the Mutual fund industry in India. Further, given the rise inincome levels and household financial savings, an increasing number of households are expected to invest inmutual fund products that yield higher returns with reasonable risk. The continuous process of urbanisation,enhanced financial literacy and a huge young population with an increased risk appetite are also likely to beinstrumental in the long term growth of the retail segment of the Mutual fund industry.The success of the industry however hinges on increasing financial literacy and showcasing the suitabilityof mutual funds in an investors portfolio. Innovations in the areas of cost efficiency, product design and

positioning of products would be pivotal to attract more investors.


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Insurance

Insurance holds a significant place in the modern economy since risk, which can be insured, has increasedimmensely in every walk of life. This has led to growth in the insurance business and development of varioustypes of insurance covers. The insurance industry acts as a mobiliser of savings, a financial intermediary and apromoter of investment activities. The Indian insurance industry has grown significantly over the past decade,which is evident in strong growth witnessed in insurance premium, increase number of players, product

modernization and enhanced regulatory framework. A combination of the above factors, along with strongeconomic growth in the past few years, has situated India as a regional insurance hub and a developingfinancial centre.

The insurance market comprises of 52 insurance companies operating in India, of which 24 are in the lifeinsurance business whereas 27 are in the general insurance business. In addition, General Insurance Company(GIC) is the sole national reinsurer company.

Domestic Life Insurance SectorThe Indian Insurance market has expanded rapidly since liberalisation in 2000 and is now the tenth largestmarket globally. Liberalization of the sector has enabled access to a host of new players with significantgrowth aspirations and capital commitments. Intensifying competition amongst competing companies hasresulted in number of product innovation and operational innovation. The period also witnessed increasedcoverage of lives, increased level of competitiveness in the industry (from 4 private players in FY01 to 24 inFY13), and significant growth through multiple channels (agency, banc-assurance, direct selling, broking,and corporate agents).

The life insurance segment grew at an impressive 25.3% CAGR between FY01 to FY11. However, duringthe last couple of years, the life insurance industry went through a transition phase that has changed thedynamics and approach of the insurance players. After a strong growth phase, the business environment hasbeen challenging for life insurance companies. This was on account of a combination of factors includingslowdown in GDP growth, inflation, high interest rates and uncertainty on other macro-economic and regulatoryparameter that impacted investor sentiments. As a consequence, the insurance players are struggling with

slow growth, rising costs, deteriorating distribution structure and other constraints. A number of regulatorychanges aimed primarily at encouraging need based selling of insurance products have resulted in industryplayers re-configuring their product mix and distribution structure. The industry players are regulating theircost structures to align their business model to the regulatory and macro-economic environment.

Industry Trend Analysis

Life Insurance Penetration and DensityThe potential and performance of the insurance sector is collectively evaluated with insurance penetrationand insurance density. These parameters are used to determine the level of development of the insurancesector in the country.

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Documents

Indias Leading BFSI Companies 2014