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7/31/2019 Nachiket icici
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Opportunities andchallenges for Indian banks
July 5, 2006
FICCI Banking Conclave
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Opportunity spectrum for Indianbanks
Consumer finance
Robust industrial investment outlook
Increasing internationalisation of India
Rural banking
Indias economic momentum driving banking sector
growth
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Consumer finance growth drivers
Changing
structure of theeconomy
Demographicpatterns
Access to financeUpward migration
of incomeConsumer
finance growth
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Changing structure of the economy
FY1991 FY2006
Services
Industry
Agriculture
43% 61%
25%
32%
19%
20%
Rapid growth of services sector
Leveraging high quality education and vast talentpool
Sublimating Indias knowledge capital to createeconomic value
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Upward migration of incomes
FY1996 FY2002
Middle income
High income
33 50
1 3
Rising affluence and growth of the consuming class
NCAER data for top 24 cities in India shows
migration to higher income levels growing at over40% per annum
FY2010
Estimate
98
10
(households in million)
Middle income Rs. 90,000-5,00,000 per household
p.a. High income > Rs. 5,00,000 per household p.a.
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across rural and urban India
FY1996 FY2002
17 16
0.7 0.3
27
1.8
(households in million)
23
0.7
Urban Rural Urban Rural
43% of households in middle and high income groups
from rural India in 2005 Their number has grown by 79% from 1996-2005
High income
Middle income
Figures for 2005 are estimatedMiddle income Rs. 90,000-5,00,000 per householdp.a.High income > Rs. 5,00,000 per household p.a.
FY2005E
35
3.6
28
1.2
Urban Rural
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7
23
35
35
>60
35-59
15-34
0-14
10
30
35
25
23
36
26
16
8
26
37
29
Demographic advantage - BRICS
58% of the population is in the working age group of 15-59years
(Agegroup) (percentage of population)
India China Russi
a
Brazil
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Increased access to finance
Rapid growth in availability of credit
Spread from large cities to second and third tierurban centres
Credit providers focusing on customerconvenience
Delivery at customers doorstep or at point-of-saleof the asset financed
Increasing affordability
Decline in interest rates and rising incomes have
allowed younger to take loans for acquiring assets Drop in average age of home buyers
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Drivers for corporate banking
Early 1990sMid to late 1990s
2000 onwards
Articulation ofinternational
competitiveness
Capitalising ondomestic demand
Restructuring to
achieve world-class efficiency
Key transformational trends Increased deployment of technology De - leveraging & organic capital generation Constantly improving quality standards
Corporate investment plans of
over US$ 50 bn
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Opportunities in corporate banking
Domestic capital expenditure
in infrastructure and
manufacturing
Global expansion organic
and inorganic
Renewed investment cycle
Forex increasing
integration with global
markets
Growing use of derivatives
for risk management
Demand for efficient
transaction banking
Markets and transaction
banking
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Opportunities in global banking Vast Indian diaspora spanning the globe
Inward remittances of about US$ 22 bn
Seeks strong India linkage and ethnic familiarity
Demands world class service
Potential for credit and liability products andtransaction services
For personal as well as business requirements
Expansion of Indian industry to global markets Growing export orientation 25% growth in
FY2006
Setting up international marketing and distributionnetworks
Acquiring/ creating production capacities overseas
Potential for acquisition/ project financing and
trade finance
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Rural banking: A new growthopportunity
1. Source: CERG (Consumer & Economic Research Group)2. Source: Tata Statistical Outline
3. Source: Mckinsey Global Institute May 2006
Opportunities for growth Though agriculture constitutes only 20% of Indias
GDP, rural economy (agri + non-agri) constitutes
about 50% of GDP1
Rural population of about 780 million2 withlimited
access to financial services
Population per bank branch: 22,793
Informal credit in India amounts to US$ 82bn3
A high proportion of agricultural lending is from informal
sources3
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Special needs Doorstep banking
Flexibility in timings
Low value and high volume of transactions
Limited background information and proof of income Require simple processes with minimum
documentation
Conventional banking not suited to meet these
demands High costs of delivery through traditional channels
High transaction costs
Dependence on documentation and financial history
Inflexible procedures
However, banking in rural India ischallenging
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and requires a comprehensive
approach
Multiple products Low-income customers require full range of
services: credit, transaction banking, investmentand risk mitigation
Multiple channels Branches at selected locations
Franchisees, internet kiosks, MFI partners
Deep penetration of the market Using a combination of channels to completely
cover selected areas Rapid-scale up
To reduce average operating costs
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Example: ICICI Banks channel
strategy
District cluster branch
ATM
FranchiseeKiosk (every circle
represents 8 kiosks)
MFI Branch
Crop cluster branch
Post Office Channel
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Challenges faced by Indian banks
Lack of product expertise
Traditionally focused on limited range of products Primarily for corporate clients
Need for acquiring skills in
Retail, structured finance
Lack of distribution expertise Reliance on branch channel and human
intervention
Relatively high unit cost of delivery given smalltransaction sizes
Limited use of technology
Across both customer-facing andinternal functions
Inefficient capital allocation
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To tap opportunities, banks must firstbuild a robust platform
Acquire product knowledge and comprehensiveproduct suite
Build distribution expertise
Look beyond branch coverage
Focus on efficiency and cost-to-serve Improve risk management and capital allocation
Manage new products and associated risks
Operate in increasingly complex environment
Deploy technology effectively to ensure return oninvestment
Develop a flexible model that allows for rapidscale-up at optimal cost
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In summary India: strong growth prospects
Banking has vast growth opportunities
Driven by consumer finance, demographics,industrial resurgence, increasinginternationalisation and deeper penetration offinancial services
This requires a transformation of the traditionalbanking model New channel architecture
Building partner relationships for outreach
Full suite of products and services
A successful mass banking model Is essential to meet the larger objective of
supporting economic growth
Builds a new engine for stakeholder value creation
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Thank you