India’s Leading BFSI Companies 2018
India’s Leading BFSI Companies 2018
India’s Leading BFSI Companies 2018 Published in India by Dun & Bradstreet Information Services India Pvt Ltd.
Registered Office ICC Chambers, Saki Vihar Road, Powai, Mumbai - 400072. CIN: U74140MH1997PTC107813 Tel: +91 22 6676 5555, 2857 4190 / 92 / 94 Fax: +91 22 2857 2060 Email: DNB_India-corporatepublication@DNB.com URL: www.dnb.co.in New Delhi Office 1 st Floor, Administrative Building, Block ‘E’, NSIC - Technical Services Center, Okhla Industrial Estate Phase - III, New Delhi - 110020. Tel: +91 11 4149 7900 / 01 Fax: +91 11 4149 7902
Kolkata Office 166B, S. P. Mukherjee Road, Merlin Links, Unit 3E, 3 rd Floor, Kolkata - 700026.
Chennai Office New No: 28, Old No: 195, 1 st Floor, North Usman Road, T. Nagar, Chennai - 600017. Tel: +91 44 2814 2265 / 75 Fax: +91 44 2814 2285
Tel: +91 33 2465 0204 Fax: +91 33 2465 0205
Bengaluru Office No. 7/2 Gajanana Towers, 1 st Floor, Annaswamy Mudaliar Street, Opp. Ulsoor Lake,
Hyderabad Office 504, 5 th Floor,
Ahmedabad Office 801 - 8 th Floor, Shapath V, Opp. Karnavati Club, S. G. Highway Ahmedabad – 380054. Tel: +91 79 6616 8058 / 59 Fax: +91 79 6616 8064
Babukhan’s Millennium Centre, 6-3-1099 / 1100, Somajiguda, Hyderabad - 500082. Tel: +91 40 6662 4102, 6651 4102 Fax: +91 40 6661 9358
Bengaluru - 560042. Tel: +91 80 4250 3500 Fax: +91 80 4350 3540
Preeta Misra Naina Acharya
Mihir Shah, Yogesh Jambhale, Omesh Kandalkar, Christopher Dsouza, Rohit Pawar, Nishikant Sharma Suhail Aboli, Jaison Swamidas, Triveni Rabindraraj, Rajesh Kandari, Prasad Kachraj, Sukhvinder Singh, Romita Dey Talukdar, Subhonita Gargari, Dharmesh Kapoor, Keerthi Madhu, Apoorwa Tyagi, Sohail Chawla, Karan Abrol, Anchal Devnani, Amit Kumar, Sonal Singh Rana, Siddarth Ravindran, Miloni Shah, Apeksha Mutreja, Rohit Sharma, Manjula Dinakaran, Pranava Rao, Taran Chawla, Pooja Arora, Nalini Kukreti Mangesh Shinde, Nehal Khosla, Sumit Sakhrani, Ankur Singh, Rajesh Gupta, Melita Menezes, Smruti Gandhi, Tia Roy, Archana Singh, Ayushi Nayak, Nikita Sachdev, Rehan Shah
Mohan Chilvery, Sonal Gangnaik, Tushar Awate, Shilpa Chandolikar, Sunil Burli
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India’s Leading BFSI Companies 2018 10 th Edition ISBN 978-93-86214-22-5
Contents Preface................................................................................................................. 1 Foreword.............................................................................................................. 5 Executive Summary.............................................................................................. 7 Methodology. ...................................................................................................... 9 Definitions & Calculations.................................................................................. 11 Industry Overview Banks.......................................................................................................... 17 NBFCs. ........................................................................................................ 31 Securities Market. ......................................................................................39 Mutual Funds. ............................................................................................ 45 Insurance ................................................................................................... 53 Blockchain Technology in BFSI Sector.........................................................59 Experts’ View. .......................................................................................E-67 - E-75 Listing ................................................................................................... L-77 - L-89 Profiles........................................................................................................91-237 Index. ........................................................................................................244-248
The Banking, Financial services and Insurance (“BFSI”) sector remains at the centre stage of the economy with its ability to connect and serve a wide section of society. The sector has created important linkages between the wider population and the productive sectors of the economy. Recognising the key role played by the sector, Dun & Bradstreet India is pleased to present the 10th edition of one of its premier publications, ‘ India’s Leading BFSI Companies ’. The publication provides useful information about the leading companies from the Indian BFSI sector. The publication ‘ India’s Leading BFSI Companies 2018 ’ consists of four broad sections. The ‘ Profile section ’ of the publication features leading companies in the BFSI sector. This year’s edition profiles 82 Banks, 169 NBFCs and Financial Services, 30 Asset Management Companies and 53 insurance companies. The ‘ Listings section ’ includes segment-wise
listings of profiled companies based on parameters such as total income, total business for banks, asset undermanagement for AMCs and net premium earned for insurance companies. The ‘ Industry Overview section ’ covers in-depth analysis of the different segments of the BFSI sector i.e. Banks, NBFCs, Securities Market, Mutual Fund and Insurance. This year’s edition also covers important aspects of blockchain technology in the BFSI sector. The ‘ Experts’ View section ’ captures the views of the industry veterans from the sector. The 2018 edition marked the 10th year of the publication ‘ India’s Leading BFSI Companies ’. The first edition, released in 2008, profiled 223 companies with an aggregate total revenue of ` 5.6 tn . A decade later, the 2018 edition featured 334 companies with more than 4 times increase in the total revenue to ` 23.3 tn . The BFSI sector has evolved over this period to a more agile and technology-driven sector. In the next 12-24 months, there are three actions that the sector needs to execute: extending the reach of the organised BFSI sector towards full financial inclusion, tackling poor asset quality, and recapitalisation of struggling public sector banks. We are hopeful that some of the recent initiatives taken by the RBI and the Government will help the BFSI sector and make it stronger.
‘ India’s Leading BFSI Companies 2018 ’ is a key source of insights and information on BFSI sector and I hope you will enjoy reading it. We look forward to receiving your valuable feedback and suggestions.
Manish Sinha Managing Director – India Dun & Bradstreet
Geetha Muralidhar, CMD, ECGC Ltd, explains the role and importance of the organisation ECGC Ltd (formerly Export Credit G u a r a n t e e Corporation of India Limited) was incorporated in 1957
clients consist of declaration-based, exposurebased and consignment covers. For banks and other financial institutes, the covers issued include fund-based (packing credit and post shipment), non-fund based (surety cover) and special schemes (line of credit and buyers’ credit). Risks covered by ECGC include commercial risks (default, insolvency and repudiation of contract) and political risks (war, civil war, transfer delay and import restrictions). The covers issued by ECGC to financial institutions include insolvency and default by exporters in repaying credit availed. ECGC has 20 short- term covers (products) for its more than 8,000 exporter clientele, and it has issued around 13,000 insurance covers till now; whereas, for its bank clientele, it has developed 11 insurance products. Thirty-five banks with around 4,000 branches have availed whole turnover covers, wherein more than 14,500 exporter accounts are covered. Besides this, 22 banks and more than 50 exporters are covered under MLT covers issued by ECGC.
Geetha Muralidhar CMD, ECGC Ltd
to facilitate and strengthen India’s exports by covering the non-payment risks faced by Indian exporters and by banks in extending export credits. ECGC is the seventh- largest credit insurer of the world in terms of coverage of national exports. ECGC is also a member of Berne Union, an association of credit insurers worldwide. ECGC’s contribution in enriching India’s global trade cannot be ignored. To fulfill its objective of export promotion, ECGC issues covers to banks and exporters engaged in foreign trade. It works under the administrative control of MOCI, and is 100 per cent owned by the Government of India, managed by a board of directors comprising nominees of Government of India, Reserve Bank of India, banks, national reinsurers and eminent persons from the exporting community. Because of its far-reaching policies and foresight, it is continuously marching on the path of advancement. Export credit insurance and ECGC Exporters doing their business on credit terms, often have to face the risk related to payment delay or non- payment. The objective of export credit insurance is to create a positive environment for exporters and banks, in which exporters can do their business without any fear and banks can extend export credit adequately. Activities of ECGC ECGC’s customers consist of exporters, banks and other financial institutions. The insurance covers issued by ECGC can be divided into short-, medium- and long- term covers. The covers issued by ECGC to its exporter
Dun & Bradstreet India is pleased to announce the launch of ‘ India’s Leading BFSI Companies 2018 ’, the tenth edition in the publication series. Through this publication, Dun & Bradstreet seeks to provide useful and comprehensive information about the leading companies from the BFSI (banking, financial services, and insurance) sector. This edition seeks to capture key trends, recent developments and the financial performance of the sector during FY17. India’s Leading BFSI Companies 2018 features 334 leading companies in the BFSI sector across various segments, namely banking, insurance, NBFC, broking and mutual funds. The banking sector, the most dominant component of the BFSI sector in India, has been going through a rough phase over the past couple of years. Credit growth has become stagnant and non-performing loans have reached new highs. Many measures have
been undertaken to help alleviate the situation. The introduction of a framework for consolidation of PSU banks, the introduction of a comprehensive plan for the recapitalisation of public sector lenders, the introduction of the Prompt Corrective Action (PCA) plan to assess, monitor, control and take corrective actions on weak and financially-troubled banks and the passing of the Insolvency and Bankruptcy Code have all been steps in the right direction. On a bright note, however, there have been many positive developments. NBFCs have now stepped in to fill the void left by banks, having ramped up their reach, especially to SMEs. The RBI has begun granting banking licences to Small Finance Banks and Payment Banks. Amidst a digital revolution where consumers are now more digital than ever before, digital disruptions have led to the creation of endless possibilities for incumbents as well as new entrants in the BFSI sector as a whole. Traditional players in the BFSI sector previously looked at digital disruption as threats to their business. They are now recognising the significant opportunities provided by digital platforms in terms of powering innovation and in terms of scales, at a low cost. The leveraging of blockchain by some banks for a range of activities is only the tip in the iceberg. The Indian BFSI sector is set to witness a massive change in the nature of jobs, distribution and delivery channels, and even products and services themselves, in the light of the rapid digitisation. We are sure that 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 India’s BFSI sector. We hope you will enjoy reading the publication, ‘ India’s Leading BFSI Companies 2018 ’ and aspire to continue providing you with well-researched and reliable information on the BFSI industry in the future. We look forward to receiving your valuable feedback and suggestions.
Preeta Misra Director - Learning & Economic Insights Group Dun & Bradstreet India
Dun & Bradstreet has been tracking the BFSI sector for a decade. This year, we are pleased to present the 10th edition of the publication, titled ‘ India’s Leading BFSI companies 2018 ’. The publication highlights the contribution of key stakeholders of the BFSI sector across India and the growth of the sector. It also identifies the key challenges, faced by stakeholders, and key trends influencing the BFSI sector. In addition, the publication profiles the leading players of the BFSI sector, with an annual total income of ` 250 mn and above in FY17. Accordingly, the publication profiles 334 companies, comprising 82 banks, 151 NBFCs and financial services, 53 insurance companies, 30 asset management companies and 18 broking companies.
Following are some of the key highlights in this publication: • The credit growth of all scheduled commercial banks (SCBs) slowed down to 8.1%
in FY17 from 10.9% in FY16; the growth in aggregate deposits, on the other hand improved from 9.3% in FY16 to 15.9% in FY17, largely on account of a massive flow of funds into the banking system after the demonetization of November 2016 • Banks’ asset quality remained under a great degree of stress in FY17. The gross nonperforming advances (GNPA) of SCBs rose to 9.6% in March 2017 from 7.5% in March 2016; the net NPA ratio of SCBs stood at 5.5% in March 2017 • On the other hand, the consolidated balance sheet of the NBFC sector turned around in FY17, growing by a healthy 14.2% as against a marginal 0.3% decline in FY16; this growth was aided by a 12.7% growth in loans & advances and a strong bounce-back in investments (18.6% increase in FY17 as against a 13.4% decline in FY16) • In FY17, the total premium income of the Indian life insurance industry stood at ` 4,184.7 bn, registering a growth of 14% • In FY17, the total direct premium underwritten by the Indian non-life insurers grew by 32.9% to ` 1,281.3 bn • During FY17, the Indian mutual funds industry witnessed a large inflow of capital and strong participation of retail investors. Consequently, the aggregate AUM of the mutual fund industry grew by a robust 42.3% to ` 17.5 tn as on March 31, 2017. This growth was spurred by a 37.3% rise in the AUM of income/debt oriented schemes. Increased adoption of technology has become one of the key characteristics on the Indian BFSI sector in recent years. Accordingly, this publication has also dedicated a separate section to the application of blockchain in various areas of operations within the financial services space. ‘ India’s Leading BFSI Companies 2018 ’ has attempted to capture the pulse of India’s financial sector. Dun & Bradstreet will continue to keep track of the developments in this sector for posterity through the pages of future issues of this publication series.
Naina R Acharya Deputy Leader - Operations Learning & Economic Insights Group Dun & Bradstreet India
For the purpose of the publication, ‘ India’s Leading BFSI Companies 2018 ’, the BFSI sector has been divided into the following key segments – banking i.e. scheduled commercial banks (SCBs) based on the RBI enumeration of SCBs as on Mar 2017; companies providing financial services falling under NIC Codes 64, 65 & 66; asset management companies as registered with Association of Mutual Funds in India (AMFI); and insurance companies that are registered with Insurance Regulatory and Development Authority of India (IRDAI), in accordance with the Insurance Act, 1938. Adequate measures are undertaken, such as an advertisement in the ‘All India’ edition of a prominent business daily, to ensure that the publication covers leading companies from the BFSI sector from across the country. In addition, emails and social networking was also entailed for reaching out to Dun & Bradstreet India’s in-house database and companies registered with the respective regulatory bodies and industry associations. Eligibility Criteria As a basic selection criterion, companies with a standalone total income of ` 250 mn and above in FY17 are featured in this publication. For companies where the published financial statement is for a period other than 12 months, the financials are annualized for the sole purpose of shortlisting and profiling. We have also considered additional exclusion criteria of the corporate governance record and NBFCs whose certificate of registration was cancelled by RBI (as on 15 Dec 2017) to arrive at the final list of ‘ India’s Leading BFSI Companies 2018 ’. Source of Information - In general, all information used in the publication is from publically available sources. Financials and other details of the companies have been sourced from annual reports or financial statements or various publications provided by regulatory authorities (IRDA, RBI, SEBI, AMFI and Government of India websites). Audited financial statements considered were for the period July 31, 2016 and June 30, 2017 have been used as the source of information for this publication. In case of certain subsidiaries, financials have been procured from annual reports of their respective parent companies. To ensure that all the information contained in this publication is verified and authenticated, companies that have not responded with financials statements, and/or their information is not available in public domain at the time of compiling this publication are excluded. The various financial computations are based on Dun & Bradstreet’s methodology and have been explicitly explained in the ‘Definitions and Calculations’ section. A standardized format has been used for reporting the information about the companies. The editorial team would appreciate if readers would keep Dun & Bradstreet India regularly updated regarding any changes in their companies, as and when it occurs. Each company featured in the publication has been allotted a unique identification number (D-UN-S® - Data Universal Numbering System). This will help readers locate and obtain full-fledged informative reports on these companies from the Dun & Bradstreet India database. The editorial team is confident that ‘ India’s Leading BFSI Companies 2018 ’ will prove a useful reference tool for information on the BFSI sector. We would be pleased to receive your invaluable feedback and suggestions, which we can incorporate in the next edition.
Definitions & Calculations
Sr No Particulars
1 Total Income for Insurance companies
Premiums earned - net (policy holder’s account) + Income from Investments (policy holder’s account) + other income (policy holder’s account) + income from investments (shareholders account) + other income and miscellaneous receipts (shareholders account)
2 Total Income for Banks
Total Income as per RBI
3 Total Income for other companies
Total Income as per Annual Report
4 Net Profit/loss for Banks
Net Profit/loss as per RBI
5 Net Profit/loss for other companies
Profit After Tax as per Annual Report
6 Net Premium Earned, AUM and Solvency Ratio of Insurance companies
as per the data from ARs/Financial Statements/ Public Disclosures, FY17 Annual Report of Insurance Regulatory and Development Authority (IRDA) Bills purchased & discounted (Short term) + Cash credits, overdrafts & loans (Short term) + Term loans Demand Deposits + Savings Bank Deposit + Term Deposits
7 Total Advances
8 Total Deposits
9 Total Business
Total Deposits + Total Advances
10 Net Profit Margin (NPM) %
Net Profit/Total Income*100
11 Net Interest Margin (NIM) (%)
Net Interest Margin as per RBI
12 Net NPA Ratio (%)
Net NPA Ratio as per RBI
13 Asset Under Management (AUM) for Insurance Companies
Asset Under Management as per IRDA Annual Report
14 AAUM(Quarter Ended) of assetmanagement companies As per Association of Mutual Funds in India (AMFI)
• Banks • NBFCs
• Securities Market • Mutual Funds • Insurance
In 2016, the global banking industry witnessed elevated levels of economic, political and policy uncertainty. New threats to financial stability emerged in an environment characterised by low-growth and low-interest. With many economies stagnating and certain advanced economies moving towards protectionism, large global banks showed signs of reduction in profitability and accumulation of systematic risk. Some region-specific factors also affected the banking sector globally. For instance, the Brexit led to more uncertainty about the banking sector in the UK and the Euro Zone. In the US, the hike in Fed rates led to positive impact on the banking sector. On the other hand, in Japan and the Euro Zone, negative interest rates have affected banks in terms of their net interest income. Also, political tensions along with high debt levels and lack of structural reforms in the banking system added to the concerns of the European banking industry. In the emerging economies, the banking industry was vulnerable to nonperforming and problematic loans arising due to the economic weakness, corporate leverage growth and sector-specific downturns. The global banking industry also faced challenges such as growing pressures of digitisation of the industry and new regulations. Banks are anxious about losing their business to FinTech companies. Tougher regulations are affecting banks’ profits. The collective impact of all these factors on the banking industry is formidable.
Global Banking Industry
Bank profitability under pressure Major economies like the US, the Euro Zone, Japan and the UK have all set their interest rates at low levels for long periods of time. The prolonged low-interest rate environment in advanced economies has narrowed the interest margins of their banks, thereby adversely affecting return on assets (ROA). The high level of non-performing loans has dampened the profitability of some of the emerging economies.
Return on Assets (%)
Advanced Economies Australia
1.2 1.1 0.3 0.5
1.4 1.1 0.5 0.4 1.4 0.4 0.4 0.2 0.4 1.4 1.3 0.7 1.9 1.4 -0.8
1.2 1.1 0.2 0.4
1.4 1.0 0.4 0.4 0.3 0.4 0.5 0.3 0.4 1.5 1.1 0.4 0.2 1.5 -2.5
0.8 1.0 0.3
0.4 0.4 0.3 0.3 1.3 1.2 0.7 0.9 1.4
0.3 0.4 0.3 0.4 1.1 0.6 0.4 1.2 1.7
Emerging & Developing Economies Brazil 1.4
China India Russia
1.3 0.9 2.4 1.5
Source: Financial Soundness Indicators, IMF
The prolonged low-interest rate policy and weak economy also flattened banks’ return on equity (ROE).
Return on Equity (%)
Advanced Economies Australia
3.4 8.9 7.1 4.4 3.0
8.9 5.4 3.8 3.3
9.4 5.7 5.6 2.8
8.3 5.5 3.8 3.2
Emerging & Developing Economies Brazil 13.1
13.1 19.2 10.8 14.0 18.6
China India Russia
19.8 13.8 17.9 20.5
7.6 5.1 9.8
Source: Financial Soundness Indicators, IMF
The persistently low profits are a serious concern for banks, as it prevents them from organically building cushion against unexpected losses and thereby makes them more vulnerable to adverse shocks. It also leads banks to seek to increase their returns by taking greater risks such as lending to less creditworthy borrowers at higher spreads and increasing the maturity mismatch between loans and funding. To counter this, banks especially in low-interest economies have increased their focus on fee-based business and trading. As a result, the share of non-interest income (which includes fees, net capital gains and trading revenue) in bank’s total income has risen. Besides, banks have increased the maturity of their assets in order to sustain interest margins from lending and bond investing. Nonetheless, since December 2015, the US Federal Reserve has kicked off its process of monetary policy normalisation and has raised Federal funds rate. The Fed’s decision to hike Fed rates has capped a decline in US banks’ net interest margins.
Deteriorating asset quality of banks in emerging economies
Bank Non-Performing Loans to Total Loans (%) 2012
Advanced Economies Australia
1.7 0.7 4.3 2.9
1.4 0.6 4.5 2.7
1.0 0.5 4.2 2.3
0.9 0.5 4.0 2.0
1.0 0.6 3.9
2.4 7.5 3.6 3.3
2.1 9.4 3.1 2.5 2.9 1.0 4.0 6.0 3.6
1.7 8.5 1.7 1.9 2.9 1.2 4.3 6.7 3.2
1.5 6.2 1.0 1.5 3.3 1.7 5.9 8.3 3.1
1.4 5.6 0.9 1.3 3.9 1.7 9.2 9.4 2.9
Emerging & Developing Economies Brazil 3.4
China India Russia
1.0 3.4 6.0 4.0
Source: Financial Soundness Indicators, IMF
Factors like external financing vulnerabilities, banking system weaknesses, weak global trade amidst rising protectionism and corporate fragilities have led to the deterioration in the asset quality of banks in some emerging economies. Banks in emerging economies have witnessed rise in non-performing loans due to economic weakness (Brazil & Russia), continued corporate leverage growth (China) and sector-specific downturns (India). The heavy credit losses due to non-performing and problematic loans have eroded profits at banks especially in Russia and India. In view of climbing non-performing loans banks have raised provisioning levels in recent periods, but that hasn’t kept pace with the rise in bad loan formation.
Bank Provisions to Non-Performing Loans 2012
2013 161.1 282.7
2014 155.8 232.1
2015 154.4 181.2
2016 152.2 176.0
Brazil China India Russia
51.3 72.2 40.2
47.4 71.1 45.8
48.7 71.7 49.1
45.7 62.3 47.8
41.1 68.5 43.9
Source: Financial Soundness Indicators, IMF
The asset quality of banks in advanced economies like the US and UK have improved over the past few years on account of various reform initiatives undertaken by the regulatory authorities. Bank capital ratios at comfortable levels With the strengthening of regulations, enhanced supervision, increased provisioning for non-performing loans and recapitalisation of stressed banks, bank capital ratios have witnessed improvement. The consolidation within the banking sector in some countries have also raised capital and liquidity buffers for banks. Moreover, the comprehensive capital analysis and stress testing exercise is also being used to identify where risks may impact the balance sheets of systemic banks. In Jun 2017, the US banks passed the second part of Federal Reserve’s annual stress test for the first time. This indicates that the US banks have built up substantial capital cushion to withstand the financial crisis like the one experienced in 2008.
Bank Regulatory Capital to Risk Weighted Assets (%) 2012
Advanced Economies Australia
11.9 16.2 14.5 17.9 13.4 14.2 11.6 17.1 14.5 9.6
11.6 14.3 15.4 19.2 13.5 13.7 15.9 13.3 19.6 14.4 16.1 12.2 12.3 13.5 15.6
12.2 14.2 16.3 18.0 14.1 14.3 15.3 13.7 17.3 14.4 16.7 13.2 12.5 12.5 14.8
13.8 14.2 17.1 18.3 16.5 14.8 15.9 14.7 19.6 14.1 16.4 13.5 12.7 12.7 14.2
13.6 14.8 17.6 18.8 16.9 13.8 16.2 14.8 20.8 14.2 17.2 13.1 13.0 13.1 15.9
Emerging & Developing Economies Brazil 16.4
China India Russia
13.3 13.1 13.7 15.9
Source: Financial Soundness Indicators, IMF
Potential impact of Brexit on the banking industry The banks’ ability to operate across jurisdictions is likely to be curtailed to a certain extent.
Banking functions such as mortgages, cross-border banking and deposit taking are likely to be affected. Operating costs for banks are likely to increase due to duplication of some banking activities and business structures in different locations. Operating in different regulatory regimes will also result in increased costs for banks. Regulatory reforms and the global banking industry Post the global financial crisis, major reforms were introduced in the global banking sector in order to strengthen banking regulations. As a result of strengthened regulatory measures, banks have now substantially increased their capital levels and holding of liquid assets. They have also improved their resilience to shocks and lowered counterparty risks. With the implementation of new regulatory measures, global banking industry though seems to be much stronger as compared to the pre-financial crisis period, its operating costs have also picked up due to the new reporting requirements and increased compliance costs. The new set of regulations coupled with the add-ons charged by regulators under stress testing and resolution schemes may further increase capital requirements for banks. While a series of regulatory measures have already been initiated, few more issues are yet to be addressed, which mainly include completion of the strengthened prudential frameworks for banks, implementation of the necessary measures to support effective cross-border bank resolution and the finalisation of the Basel III package of reforms. Impact of growing digitisation on the banking sector The global banking industry has witnessed growing pressure of digitisation in the past few years. There have been three key trends in the global banking sector in this regard. • Firstly, the regulators who were initially conservative about the entry of digital firms in the financial sector are gradually opening up. • Second, digital solutions providers and FinTech companies were earlier seen as potential threat by banks owing to concerns of revenue losses. However, banks have now started collaborating with FinTech companies in the areas of big data and analytics in order to drive revenue growth. • Thirdly, many banks have digitised their processes and have lowered costs in their middle and back offices. Indian Banking Industry Overview While the global banking industry was confronted with various challenges in 2016, banking industry in India too witnessed elevated risk due to continuous deterioration in asset quality, low profitability and liquidity. The credit growth of all SCBs slowed down from 10.9% in FY16 to 8.1% in FY17. A high proportion of delinquent loans and consequent increase in provisioning for non-performing assets was reflected in lower risk appetite and stressed financial positions of banks, which in turn dampened the credit growth in FY17. Amongst sectors, credit to industry declined by 1.9% in FY17 as against a growth of 2.7% in FY16; this was largely on account of muted credit demand from the corporate sector consequent to lower capital expenditure. Moreover, lending to the infrastructure sector, which accounts for at least one-third of SCBs total lending towards industrial activity, declined by 6% in FY17. Growth in personal loans also witnessed some moderation, from 19.4% in FY16 to 16.7% in FY17, owing to weak demand for housing loans. The events of demonetisation in H2 of FY17 and investors deferring their home purchase decisions in expectation of a decline in real estate prices were the main reasons behind the slowdown in the growth of housing finance. On the other hand, growth in service sector credit witnessed substantial acceleration from 9.1% in FY16 to 19.5% in FY17.
Trends in Credit and Deposit Growth (% y-o-y)
10.0 12.0 14.0 16.0 18.0
0.0 2.0 4.0 6.0 8.0
Sectoral Deployment of Non-food Gross Bank Credit (% y-o-y growth)
Services Housing Loan Priority Sector Sectoral Deployment of Gross Non-food Bank Credit (% y-o-y growth) FY16 FY17 Personal Loans
Bank deposits, however, grew by 15.9% in FY17 as compared to 9.3% in FY16. This was largely on account of a massive flow of funds into the banking system after the demonetisation of Nov 2016. This is reflected by the whopping 45.7% growth in demand deposits of all SCBs in FY17 as against a 12% growth in FY16. Financial performance of SCBs in India The slowdown in credit growth affected the interest income of SCBs in FY17. Accordingly, the share of fee-based income in total income expanded. The share of net interest income in total operating income declined to 63.8% as of Mar-17 as against 69.3% as of Mar-16. Nonetheless, given the sharp rise in other operating income and slower growth in risk provisions, SCBs’ profit after tax grew by 48% in FY17 as against a decline of 61.6% in FY16. Public sector banks however continued to record negative returns on their assets.
Declining share of net interest income in total operating income
Return on Assets (%)
Return on Equity (%)
The Capital to Risk Weighted Asset Ratio for all SCBs including public sector banks improved to 13.6% in FY17, mainly due to capital infusion by the government and changes in the treatment of revaluation reserves, foreign currency translation reserves and deferred tax assets. Banks’ non-performing loans continued to display the highest level of stressed advances. The gross non-performing advances (GNPA) of SCBs rose to 9.6% in Mar-17 from 7.5% in Mar-16. The net non-performing advances ratio of SCBs stood at 5.5% in Mar-17. The stressed advances ratio also witnessed a decline due to fall in restructured standard advances. Amongst sectors, agriculture, retail and services sectors witnessed a fall in stressed advances ratio, while industry sector witnessed a rise in stressed advances ratio to 23.0% in Mar-17. Among the sectors, cement, vehicles, mining & quarrying and metals were major contributors to the hike in the stressed advances ratio.
Gross NPAs to Gross Advances Ratio (%)
Banks have been using various legal channels like resolutions through Lok Adalats, Debt Recovery Tribunals and invocation of SARFAESI in order to reduce their non-performing assets. Banks have also attempted to reduce their stressed assets by selling them to asset reconstruction companies (ARCs). The sale of stressed assets to ARCs has registered an increasing trend since 2014, due to regulatory support provided to banks under the Framework to Revitalise the Distressed Assets in the Economy.
Indian Banking Industry – Some Key Developments
Regulatory measures to reduce distressed assets of SCBs The RBI has adopted a pro-active approach for resolution of stressed assets. It undertook several measures to reduce distressed assets of SCBs. Some of the important measures include: 1. The introduction of the Scheme for Sustainable Restructuring of Stressed Assets (S4A). 2. Streamlining the process of selling stressed assets by banks to facilitate better valuation, price discovery and creation of a vibrant stressed assets market. 3. Release of a separate framework for revival of distressed loans in the MSME sector. 4. On Dec 1, 2016, Large Exposures Framework was issued to limit a bank’s exposure to a single counter-party or a group of connected counter-parties. This framework is expected to help in containing concentration risks. 5. In Aug 2016, the RBI released a complementary framework for discouraging large borrowers to depend solely on banks for their funding needs. 6. In Oct 2017, the Finance Ministry announced a ` 2.1 tn recapitalisation plan for PSU banks. In addition to this, in a significant move, the Government issued the Banking Regulation (Amendment) Ordinance, 2017 in May 2017 to amend the Banking Regulation Act, 1949. The main objective of this amendment is to insert provisions for recovery of outstanding loans. Under these provisions, the Central Government may authorise the RBI to direct banks to initiate recovery proceedings against loan defaulters. The recovery proceedings will be held under the Insolvency and Bankruptcy Code, 2016. Currently, the RBI may only issue directions to banks on grounds such as ‘public interest’. However, the amendment to the Banking Regulation Act will give the RBI additional powers to direct banks to initiate recovery proceedings. The Government also infused a sum of ` 250 bn in 19 public sector banks during FY16 and ` 229.2 bn in 13 public sector banks during FY17. Likewise, an amount of ` 100 bn has been proposed for recapitalisation of public sector banks in FY18. Moreover, the Government allowed public sector banks to raise capital frommarkets through Follow-on Public Offer (FPO).
Consolidation of banks On Apr 1, 2017, Bharatiya Mahila Bank and five associates of State Bank of India (SBI) namely State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala and State Bank of Hyderabad were merged with SBI. After the merger of SBI and its associate banks, the Ministry of Finance is considering further consolidation in the banking space. The Niti Aayog has been working on a report on consolidation of public sector banks. Factors such as economies of scale, revenue enhancement, value maximisation, efficiency gains, cost savings and diversification of customers and assets are expected to drive more consolidation activities in the banking space going forward. Financial Inclusion As per the census of 2011, only 58.7% of households in the country are availing banking services. The Government and the RBI have been making concerted efforts to promote financial inclusion in the country. Some of the major efforts made in the recent period include: 1. Allowing corresponding banking: Banks have been permitted to provide banking service through the use of business facilitators and business correspondents (BC). The BC model has allowed banks to do cash in-cash out transaction at unbanked rural areas, thereby enhancing financial inclusion. 2. Providing banking services in villages with population more than 2,000 3. Opening banking outlets in unbanked villages with population less than 2,000: As on June 30, 2016, 452,151 villages have been provided banking services; 14,976 through branches, 416,636 through BCs and 20,539 by other modes viz. ATMs, mobile vans, etc. 4. Financial inclusion plans: All SCBs were advised to prepare board-approved Financial Inclusion Plans (FIPs) which are submitted to the RBI and are implemented over blocks of three years. FIPs mainly include self-set targets with respect to: opening rural brick andmortar branches; Business Correspondents (BCs) employed; coverage of unbanked villages through branches/BCs/other modes, opening of Basic Savings bank deposit accounts (BSBDAs); issuance of Kisan Credit Cards (KCC) and General Credit Cards (GCC) and other specific products aimed at the financially excluded segments. 5. Relaxed know your customer (KYC) requirements: The KYC for new bank accounts was simplified to the extent possible to encourage opening of bank accounts by weaker sections of the society. Besides, Aadhaar was allowed to be used as one of the eligible documents for meeting KYC requirement for opening a bank account. Some of the key performance highlights of the 68 SCBs profiled in the India’s Top Banks 2017 publication are as follows:- • The 2017 edition of the India’s Top Banks publication features 68 banks – 21 public, 21 private and 26 foreign banks • In FY17, the aggregate total income of the 68 profiled SCBs stood at ` 11.5 tn , reflecting a 6.7% growth; the total income of private sector banks grew by a healthy 15.8% during the year, as against a modest growth in public sector banks (3%) and foreign banks (5.8%) • The aggregate value of Net Interest Income (NII) rose by 6.4% to 3,284.8 bn; private banks reported a 15.7% growth in NII, as against a flat performance by public and foreign banks • In FY17, the aggregate net profit of the profiled banks grew by a whopping 72.6% to ` 562.9 bn; interestingly, although private banks accounted for 75% of the aggregate value of net profit, their net profit rose by a tepid 2.5%; in contrast, public sector banks reflected a bounce-back from losses to profits in FY17, while the net profit of foreign banks jumped by 20.8% during the year • In FY17, the aggregate advances of the 68 profiled SCBs stood at ` 78,072.8 bn, reflecting a 3.9% growth vis-à-vis FY16 • Although the advances by public sector banks accounted for a lion’s share of 67.3%, they remained flat as compared to FY16 at ` 52,593.4 bn, on the other hand, the advances by private sector banks rose by 13.9% y-o-y to ` 22,195.6 bn • The aggregate value of deposits in FY17 stood at ` 105.6 tn , reflecting a 10.2% growth vis-à-vis FY16; deposits in private sector banks rose by a much faster 18.4% as compared to 8.1% in the case of public sector banks • In FY17, the total business of all profiled banks taken together in FY17 stood at ` 183.7 tn , reflecting a 7.6% y-o-y growth; public sector banks accounted for 69.7% of the total business; the growth of total business in private sector banks stood at a healthy 16.9% as compared to a much slower 5.1% in the case of public sector banks • Foreign banks witnessed a 7.9% decline in advances in FY17; consequently, their total business also declined during the year, by 1.9%
Non-Banking Financial Companies (NBFCs)
Overview of Non-Banking Financial Companies (NBFCs) Non-Banking Financial Companies (NBFCs) play an important role in the Indian financial system by supplementing the role of the banking sector in terms of meeting the financial needs of the corporate sector, the unorganized sector and even small local borrowers. They are an important source of innovative financial services to Micro, Small and Medium Enterprises (MSMEs). They provide products and services such as personal loans, housing loans, gold loans and insurance services, and also financial services in niche areas including microfinance, financing physical assets, commercial vehicles and infrastructure loans. NBFCs are regulated under Chapter III-B of the RBI Act, 1934. Accordingly, the Department of Non-Banking Supervision (DNBS) is entrusted with the responsibility of regulation and supervision of NBFCs. They are governed by the Reserve Bank of India (RBI), with a few exceptions such as housing finance companies (HFCs), mutual funds, insurance companies, stock broking companies, merchant banking companies and venture capital funds (VCFs). A revised regulatory framework was put in place for NBFCs in 2014, to bridge the gap between Banking and Non-Banking regulations, focusing on addressing risks, reducing regulatory arbitrage and simplifying regulations to facilitate smooth compliance culture. Some of the products offered by NBFCs are similar to those of banks. However, NBFCs are subject to certain regulatory constraints which restrict their business portfolio. Hence, in order to enable them to capitalise on their full potential and in order to meet the ever growing financial needs of the economy, there is a need for reforms to bring about a level playing field. Declining trend in number of NBFCs registered with RBI continues The total number of NBFCs registered with the RBI has been reflecting a decline over the years. The total number of NBFCs decreased to 11,522 as on March 31, 2017 from 11,682 a year ago, which translates into a 1.4% decline. This decline was largely due to cancellations of Certificates of Registration (CoR). This is a reflection of the RBI’s cautious and stringent approach and strategy to consolidate the NBFC sector through prudent regulations such as capital adequacy requirements and provisioning norms. In FY17, about 169 CoRs were cancelled. The number of registered NBFCs further declined to 11,456 by Nov 30, 2017.
As on Nov 30, 2017 As on Mar 31, 2017 As on Mar 31, 2016
Financial Performance of NBFCs Muted growth in bank credit since FY15 created a financial gap. In FY17, bank credit was affected by factors such as the demonetization, the implementation of corrective actions such as a revised prompt corrective action (PCA) & Asset Quality Review (AQR) and abnormally high NPA levels. Accordingly, this gap was then filled by NBFCs. Consequently, NBFCs have been able to record a double-digit growth in credit in recent years. In FY17, the total balance sheet size of the sector grew by a healthy 14.2% to ` 19.7 tn, as against a 0.3% decline in the preceding year. Loans and advances, which constituted 75% of the aggregate value of total assets rose by 12.7%. In FY17, the aggregate borrowings by NBFCs from various sources, which accounted for almost 70% of total liabilities, increased by 12.1%. This was driven by market-based instruments, such as a 48.7% rise in outstanding commercial paper and a 19.8% increase in the outstanding value of debentures. Investments grew by 18.6% during FY17, in the wake of buoyant markets.
At the bottomline level, however, net profit for FY17 declined by 14.4% due to increased provisioning requirements. The ratio of net profit to total assets contracted to 1.6% in FY17 from 2.1% a year ago. Likewise, the return on equity (RoE) declined to 7% in FY17 from 9.7% in FY16.
Growth trends in financial parameters of NBFC Sector (%) Particulars FY17 FY16 Total Borrowings 12.1 0.2 Loans & Advances 12.7 11.0 Investments 18.6 (13.4) Total Income 7.8 6.6 Total Expenditure 11.9 8.9 Net Profit -14.4 0.5 Source: RBI
Sectoral Credit of NBFCs In FY17, industry (MSME, large industry/infrastructure and microfinance, among others) received about 60% of the total credit by NBFCs. This was followed by retail loans (16.8%) and services (15%). During the year, retail credit grew the fastest, by 21.6%, on account of consumer durables and credit card receivables. Credit to services grew by 19.2%, while credit to industry grew by 10.9%. In contrast, credit to agriculture & allied activities contracted.
NBFCs : Credit to Select Sectors
FY17 Share in FY17 (%)
Non-food credit (1 to 5)
1. Agriculture and allied activities
2. Industry (2.1 to 2.4) 2.1 Micro and small
10.9 55.8 11.7 17.4
2.2 Medium 2.3 Large 2.4 Others
3,726 3,857 1,865 2,047 1,150
4,375 3,885 2,224 2,490 1,035
29.5 26.2 15.0 16.8
4. Retail loans
4.1 Vehicle / Auto Loans 5. Other non-food credit
The NBFC sector’s exposure to sensitive sectors (capital market, real estate and commodities) increased in FY17. During the year, its exposure to the real estate sector expanded to 5.6% of total assets from 4.8% in FY16. The increased exposure to the real estate sector is a reflection of the sector’s quest for high yields. Balance sheet performance of Non-Deposit taking Systemically Important NBFCs (NBFC-ND-SI) In FY16, the number of companies from the NBFC-ND-SI segment more than halved to 220 from 471 in FY15. This was largely due to revised regulatory framework for NBFCs which resulted in the raising of the asset size threshold for NBFCs- ND-SI to ` 5 bn or more, from the erstwhile ` 1 bn. This resulted in the reclassification of many NBFCs-ND-SI to NBFCs-ND. Nevertheless, although companies from the NBFC-ND-SI segment stand at a mere 220 of the more than 11,000 NBFCs in India, they account for a whopping 86% of the total assets of the NBFC sector. In FY17, the total balance sheet size of NBFCs-ND-SI increased by 14.1%. Loan Companies (LCs) contributed the most to the increase, supported by a healthy growth in the retail segment. Loans & advances grew by a healthy 12.3%. Investments
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