Dun & Bradstreet India’s Leading BFSI Companies 2017

India’s Leading BFSI Companies 2017

India’s Leading BFSI Companies 2017

India’s Leading BFSI Companies 2017 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

Editor

Preeta Misra

Sub-Editor

Naina Acharya, Yogesh Jambhale

Editorial Team

Omesh Kandalkar, Christopher Dsouza, Agnel Peter, Yash Kavi, Rohit Singh, Mihir Shah, Aakanksha Sawant, Rohit Pawar, Nishikant Sharma Suhail Aboli, Jaison Swamidas, Triveni Rabindraraj, Rajesh Kandari, Apoorwa Tyagi, Karan Abrol, Anchal Devnani, Manjula Dinakaran, Subhonita Gargari, Sunena Jain, Prasad Kachraj, Dharmesh Kapoor, Amit Kumar, Keerthi Madhu, Shivakar Mathur, Ayushi Nayak, Sushmita Nigam, Suchitra Pandey, Siddarth Ravindran, Smita Roy, Rashmi Singh, Sukhvinder Singh Mangesh Shinde, Nehal Khosla, Prem Kumar, Ankur Singh, Sumit Sakhrani, Rajesh Gupta, Melita Menzes, Smruti Gandhi, Tia Roy, Upasana Mohapatra, Lakshaya Sahni, Archana Singh, Parmeshwar More

Sales Team

Operations Team

Design Team

Mohan Chilvery, Sonal Gangnaik, Tushar Awate, Yakoob Mohammed, Shilpa Chandolikar

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India’s Leading BFSI Companies 2017 9 th Edition ISBN 978-93-86214-15-7

Contents Preface.................................................................................................................. I Foreword..............................................................................................................V Executive Summary............................................................................................VII Methodology. ..................................................................................................... XI Definitions & Calculations.................................................................................XIII Sector Overview Banks........................................................................................................XVII NBFCs. ................................................................................................... XXVII Securities Market. .................................................................................XXXIII Mutual Funds. ........................................................................................ XLVII Insurance .................................................................................................. LIII Interviews . .............................................................................................. I-1 - I-10 Listing ..................................................................................................... L-1 - L-11 Profiles Banks.......................................................................................................1-35 NBFCs / FIs / Financial Services. ............................................................37-80 Broking. .................................................................................................83-90 Asset Management Companies...........................................................93-103 Life Insurance. ...................................................................................109-119 Non-Life Insurance. ...........................................................................121-135 Abbreviation. ............................................................................................139-144 Index. ........................................................................................................145-149

Preface

Dun & Bradstreet India is proud to announce the launch of the ninth edition ‘ India’s Leading BFSI Companies ’, one of its premier publications. The publication provides useful information about the leading companies from the Indian BFSI (banking, financial services, and insurance) sector. Apart from highlighting the recent developments and key trends in the sector, it also features the major BFSI companies in the country. FY16 was a challenging year in terms of financial stability, especially for emerging market economies (EMEs). Most EMEs witnessed severe domestic imbalances as a result of economic stress, and a slowdown in credit growth. However, India outperformed its EME peers in terms of economic growth, with its GDP at constant prices (2011-12) having grown by 7.6% in FY16. The Indian BFSI sector had a mixed performance in FY16. On one hand, its banking sector was weighed down by rising NPAs. All scheduled commercial

banks in India saw a deceleration in the growth of both, credit as well as deposits as compared to FY15. On the other hand, however, the aggregate balance sheet of NBFCs grew at a healthy rate. The insurance sector, both the life as well as non-life segments, also witnessed a healthy growth in premiums. During the year, the mutual funds sector managed to breach the ` 12 trillion mark in terms of average assets under management. There were some major developments in FY16 that promise to shape the financial landscape in the years to come. One of them was the in-principle approval for the setting up of payments banks. The release of guidelines for on tap licensing of universal banks in the private sector will promote competition in the banking sector and also help enhance financial inclusion. The government’s push for digitisation has resulted in technology being leveraged for the delivery of financial services, and has also led to the emergence of new innovative services. For instance, the launch of the Unified Payments Interface promises to revolutionize retail payments. More recently, the government’s demonetisation drive will lead to an improvement in the liquidity levels of banks and will reduce the cost of funds. The government’s plans to improve financial inclusion are also showing good progress. These are only some of the developments that all augur well for the Indian BFSI sector. Dun & Bradstreet is extremely optimistic about the rapid growth of the Indian BFSI sector. We are confident that the publication ‘ India’s Leading BFSI Companies 2017 ’ will serve as a ready reckoner on the Indian BFSI sector. I hope you will enjoy reading ‘ India’s Leading BFSI Companies 2017 ’ and welcome your suggestions and feedback.

Kaushal Sampat President & Managing Director - India Dun & Bradstreet

I

ECGC Diamond Jubilee Celebrations inaugurated by the President, Shri Pranab Mukherjee

NewDelhi,November8,2016 :The President, Shri Pranab Mukherjee inaugurated the Diamond Jubilee Celebrations of ECGC at Vigyan Bhavan, New Delhi. The function was presided by Smt. Nirmala Sitharaman, Minister of State (I/C) for Commerce and Industry, Government of India while Smt. Rita Teaotia, IAS, Commerce Secretary, Government of India and Shri Ajay Kumar Bhalla, IAS, Director General of Foreign Trade, Government of India, were the guests of honour. During the function, the President Shri Pranab Mukherjee, unveiled the Diamond Jubilee logo of ECGC and the Minister of State (I/C) for Commerce and Industry, released the Diamond Jubilee Journal and Stamp; the first copies of which were presented to the President. The Corporate Film which highlighted the achievements of ECGC and the role played by them in India’s export promotion was shown during the function. The function was well attended by a large number of bankers, exporters, representatives of trade bodies and prominent people from the government, business and trade. Smt. Teaotia welcomed the guests and outlined the crucial role played by ECGC in promotion of exports from India. She said that ECGC has

evolved to meet the need of the changing times. The organization has grown substantially over the years and its premium income had increased to ` 1300 crores. It served 9000 exporters directly and another 17000 exporters who are financed by banks to whom ECGC provides credit risk insurance. The Minister of State (I/C) for Commerce and Industry, Smt. Nirmal Sitharaman, said that it was a matter of great pride that ECGC had grown to become one of the world’s leading credit risk insurance provider for exports and trade related services and ranked as the 5th largest credit insurer in the world in short term business. She emphasized the need for the country’s export to grow and to achieve that, the Indian exporters wouldneedtoexplorenewmarkets like Africa, Latin America and Far East since exports to developed economies have been at the same level or declining during the past couple of years. She also made a case for extending greater support so that it can play an even greater role in promoting exports. The President in his address recalled the time when he was the Minister of Commerce and said that ECGC always had a record of taking initiatives and launching innovative products to meet the needs of the export community. He mentioned that in order to

give a major boost to exports, the country’s exporters would have to be more competitive. He outlined the need for ECGC to extend support to exporters who are looking at these new markets, even though there would be a greater element of risk associated with trade with some of these countries. Muralidhar, Chairman-cum-ManagingDirector, ECGC Ltd. profusely thanked the Government, the Ministry of Commerce, the Board of Directors, past and present employees of ECGC, all of whom have played an important role in bringing it to the stature that it enjoys today. About ECGC ECGC was established in 1957 as India’s first organization to offer Credit Risk Insurance to exporters. Over the last six decades, ECGC has weathered many a storm and protected exporters in times of geopolitical turmoil, economic downturns and currency collapses. The Corporation has earned an international reputation and has grown to become the fifth largest Credit Risk Insurer in the world in short term business. ECGC’s growth has been commendable; its Total Business Covered has grown from ` 75 crore in FY1966 to ` 2,70,000 crores in FY2016. Smt. Geetha

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9:41AM

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Foreword

Dun & Bradstreet India takes pleasure in announcing the launch of the ninth edition of its premier publication – ‘ India’s Leading BFSI Companies ’. 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. Additionally, it also highlights the recent developments and key trends in the sector. The BFSI sector plays a critical role in driving the country’s economy by providing a diverse range of financial and allied services to the largely diversified demographic spectrum of the country. Its importance in the socio-economic landscape is underscored by the fact that this sector will require a skilled workforce of 1.6 million by the year 2022.

The recent demonetisation announcement has led to improved liquidity levels in the financial sector, especially in the banking industry. The increased liquidity, in turn, is expected reduce the cost of funds. Further, the impending reduction in cash transactions is also expected to result in a shift towards digital channels like digital wallets, debit and credit cards and User Payment Interface for financial transactions. Accordingly, we are currently witnessing a very dynamic environment in the BFSI sector in terms of innovation, high competition, consolidation, and increasing use of alternative multiple channels to name a few. In India, the market for the BFSI sector is still largely untapped. Digital technology, which has transformed the way business is conducted across the world, is expected to be one of the major drivers for the growth of this sector in India as well. A wide range of financial products are increasingly being sold and delivered using the electronic platform to millions of customer in India. Greater use of digital technology is helping the BFSI sector to lower the cost of transaction and bring higher efficiency and greater reach in the financial ecosystem. In the current scenario where the Government seeks to reduce the economy’s dependence on cash, the increased focus on tech-adoption promises to take the BFSI sector on a path of rapid growth. ‘ India’s Leading BFSI Companies 2017 ’ stands as a ready reckoner on the Indian BFSI sector. Dun & Bradstreet is extremely optimistic about the progress of this sector and reiterates its commitment to continue tracking it to facilitate making informed business decisions. I hope you will enjoy reading ‘ India’s Leading BFSI Companies 2017 ’ and look forward to your suggestions.

Preeta Misra Director - Learning & Economic Insights Group Dun & Bradstreet India

V

Executive Summary

Dun & Bradstreet, the world’s leading provider of business information, knowledge, and insight, has been tracking the banking, financial services and insurance (BFSI) sector for the past eight years through its publication titled ‘India’s Leading BFSI Companies’. The ninth edition, in this series, ‘ India’s Leading BFSI Companies 2017 ’ highlights the contribution of key stakeholders of the BFSI sector across India and the growth of the sector. The publication profiles the leading players of the BFSI sector with an annual total income of ` 250 million and above in FY16. Accordingly, the publication profiles 303 companies – comprising 88 banks, 119 non-banking financial companies, 53 insurance companies (life and non-life), 24 asset management companies and 19 broking companies.

Following are some of the key highlights in this publication: • Credit growth of all scheduled commercial banks (SCBs) slowed down to 8.8% in FY16 from 9.7% in FY15. Similarly, the deposit growth rate of all SCBs decelerated to 8.1% in FY16 as compared to 10.7% in FY15 • The aggregate balance sheet of the NBFC sector increased by 15.5 % in FY16 on a y-o-y basis as compared to that of 15.7 % in March 2015 • In FY16, the total premium income of the Indian life insurance industry stood at ` 3,669.4 bn, registering a growth of 11.8% over the previous year • In FY16, the total direct premium underwritten by the non-life insurers in India stood at ` 963.8 bn as against ` 846.9 bn in FY15, registering a growth of 13.8% • In the mutual funds industry, the average assets under management (AAUM) crossed the ` 12 trillion mark at the end of FY16 The BFSI sector is witnessing a very positive environment on the back of government reforms and high level application of financial technology. The leading companies from the BFSI sector are expected to play a critical role in transforming the nation into a digital economy. Dun & Bradstreet will continue to keep track of various developments in this sector to make this publication a ready reference tool of the BFSI sector.

Naina R Acharya Deputy Leader - Operations Learning & Economic Insights Group Dun & Bradstreet India

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VIII

URN No. SPON/2017-17/447

IX

Methodology

For the purpose of the publication, ‘ India’s Leading BFSI Companies 2017 ’, 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 2016; 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 (IRDA), 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 most 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. 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 are excluded. In addition, if the annual reports of companies are not available to Dun & Bradstreet at the time of compiling this publication, then those companies have also been excluded. As a basic selection criterion, companies with a standalone total income of ` 250 mn and above in FY16 are featured in this publication. Further, subsidiaries and associate companies satisfying the eligibility criteria have also been featured. We have also considered additional exclusion criteria of the corporate governance record (with a focus on NBFCs, FIs, Financial Services & Broking Companies) and NBFCs whose certificate of registration was cancelled by RBI (as on 15 Dec 2016) while compiling this publication to arrive at the final list of ‘ India’s Leading BFSI Companies 2017 ’. Audited financial statements considered were for the period July 31, 2015 and June 30, 2016 have been used as the source of information for this publication. The various financial computations are based on Dun & Bradstreet’s methodology and have been explicitly explained in the ‘Definitions and Calculations’ section. 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. In general, all information used in the publication is from publically available sources. Financials of the companies have been sourced from annual reports or financial statements or regulatory authorities (IRDA, RBI, and AMFI). In case of certain subsidiaries, financials have been procured from annual reports of their respective parent companies. Information pertaining to SCBs has been primarily sourced and compiled from RBI, annual reports (ARs) and websites of banks. Information related to financials and infrastructure of the banks has been taken purely from various publications provided by the RBI and pertains to March 2016. The information pertaining to financial services companies, insurers and AMCs have been sourced and compiled from - • Questionnaires circulated and administered by Dun & Bradstreet India; • Data provided by the respective regulatory authority (IRDA and AMFI) through its websites and various publications; • Data available from respective companies’ website and ARs/financial statements, draft red herring prospectuses; • Government of India websites such as Reserve Bank of India, Securities and Exchange Board of India, Economic Survey etc. The total income pertaining to insurance companies has been calculated by taking financials from the annual reports and public disclosures of respective insurers. Other financial information pertaining to insurers has been taken from IRDA’s FY16 AR. The Quarter Ended AAUM pertaining to AMCs has been considered from AMFI while other financial information is taken from their respective ARs/financial statements. The financial information for financial services companies, NBFCs, FIs, broking companies have been taken from ARs/Financial Statements. 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 2017 ’ 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.

XI

XII

Definitions & Calculations

Calculations • Total Advances = Bills purchased & discounted (Short term) + Cash credits, overdrafts & loans (Short term) + Term loans • Total Deposits = Demand Deposits + Savings Bank Deposit + Term Deposits • Total Business = Total Deposits + Total Advances

• Net Profit Margin (NPM) = Net Profit/Total Income*100 • Total First Year Premiums (FYP) = FYP + Single Premiums

• 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) Data Sources • Total Income for banks taken as per RBI and for other companies as per the ARs/Financial Statements/Public Disclosures • Net Profit/Loss for banks taken as per RBI and for other companies as per the ARs (except for Insurance companies) • Total Deposits, Total Advances, CRAR - Basel III and Net NPA/Net Advances Ratio for banks taken as per RBI • AAUM (Quarter Ended) of asset management companies taken from Association of Mutual Funds in India (AMFI) as per data disclosed by the AMCs - (Excluding Fund of Funds - Domestic but including Fund of Funds – Overseas) + (Fund of Funds – Domestic) • Net Premium Earned, AUM and Solvency Ratio of Life Insurance companies taken as per the data from ARs/Financial Statements/Public Disclosures, FY16 AR of Insurance Regulatory and Development Authority • AUM, Solvency Ratio and Incurred Claims Ratio of Non-life insurance companies taken as per the data from FY16 AR of Insurance Regulatory and Development Authority • Net Premiums Earned of Non-life insurance companies taken as per ARs/Financial Statements/Public Disclosures

XIII

Indian Banking Overview

Indian Economic Progress The Indian economy is on the retrieval path, supported by sound government policies and structural reforms. It has played a significant role in withstanding global uncertainties and dynamics of the rest of the world. During 2015, India continued to depict a much smaller Current Account Deficit (CAD) as it experienced large foreign direct investments flows. In fact, India’s CAD was at its lowest level in seven years in the quarter ended March 2016. The international reserves of India have increased by USD 46.7 bn since Mar 2014 to USD 350.4 bn in Dec 2015. Despite better growth prospects, India still faces the risk of high household inflation, fiscal deficits challenges along with risks of low investments flow, commodity cycle reversals, weakness in corporate sector financial positions and deterioration in the bank asset quality. India’s gross domestic product (GDP) stood at 7.6% in FY16 up from 7.2% in the preceding year. The government has pegged the GDP growth rate at 7- 7.75 % for FY17. The up lift for FY17 is expected to come from strong domestic demand, improvement in industrial activity, and an upturn in private investments, infrastructure development and overhaul of the corporate sector and revival of public sector bank balance sheets. Over the past seven years since the 2008-2009 global financial crisis, the Indian banking sector has depicted a distinct performance. As per RBI, the Indian banking industry is sufficiently capitalized and well-regulated. The banking industry consists of public, private, foreign, regional rural and co-operative banks . Nearly 80% of the market share is dominated by public sector banks. Over the years, Indian private sector banks and foreign sector banks have exhibited improvements in their profitability, asset quality, lower credit costs and healthy capital reserves. On the other hand, public sector banks (PSBs) are facing decline in their earnings growth, reduction in profit margins, asset quality deterioration and increase in credit costs.

Credit & Deposit Growth Continued to Remain Sluggish The credit and deposit growth of all SCBs have significantly declined during FY16. This is largely contributed by the overall subdued performance of the public sector banks. Credit growth of all SCBs slowed down to 8.8% in FY16 from 9.7% in FY15. Similarly, the deposit growth rate of all SCBs decelerated to 8.1% in FY16 as compared to 10.7% in FY15. Private and foreign sector banks outpaced public banks as the credit growth amongst the private and foreign sector stood at 24.6% and 11.8% respectively, whereas that of public sector banks displayed a marginal growth of 4% as of March 2016. Deposit growth amongst private and foreign sector banks were marked at 17.3% and 13.3%, public sector banks showed a growth of merely 5.2% for FY16.

XVIII

Trends in Credit and Deposit Growth (y-o-y in %)

20

15

10

5

0

FY12

FY13

FY14

FY15

FY16

Bank Credit growth

Aggregate Deposits Growth

Source: RBI data and Dun & Bradstreet Research

Capital to Risk Weighted Asset Ratio for all SCBs improve in FY16 The capital to risk weighted assets ratio (CRAR) of all SCBs marginally increased to 13.2% in FY6 from that of 12.9% in FY15. Across the bank groups’, the public sector and the private sector indicate a slight increase in their CRAR and stood at 11.6% and 15.7% respectively as of March 2016. However foreign sector banks are strengthening their capital base cover and balance sheets and displayed a comparatively better CRAR ratio of 16.5% over the previous year. Overall, SCBs managed their Tier-1 leverage ratio and remained unchanged at 6.8% during FY16.

Capital to Risk Weighted Assets Ratio (in %)

Leverage Ratio

25

12

9.9

10

8.9

20

16.5

15.7

8

6.8

15

13.2

11.6

5.5

6

10

4

5

2

0

0

Public Sector Banks Private Sector Banks Foreign Banks

All SCBs

Public Sector Banks Private Sector Banks Foreign Banks

All SCBs

FY14 FY15 FY16

FY14 FY15 FY16

Source: RBI data and Dun & Bradstreet Research

Asset quality of all SCBs Continued to Deteriorate in FY16 The gross non-performing advances (GNPAs) of public sector banks continued to display the highest level of stressed advances ratio at 14.5 %, compared to private and foreign sector banks that recorded stressed advances ratio at 4.5 %. The GNPAs of all SCBs sharply increased to 7.6% as of March 2016 compared to 4.6% in FY15. The restructured standard advances ratio declined considerably to 3.9% as compared to 6.4% in FY15 for all SCBs. GNPAs largely contributed to the increase in the overall stressed advance ratio to 11.5% for FY16 from 10.9 in FY15. Looking at the y-o-y growth of GNPAs there has been a significant rise across public, private and foreign sector banks in FY16. This is reflected in the sharp 79.7% increase in GNPAs of SCBs during FY16.

XIX

GNPA and Restructured Standard Advances to Total Advances

GNPA growth (y-o-y in %)

10 12 14 16

10 20 30 40 50 60 70 80 90

4.9

3.9

0 2 4 6 8

0.3

9.6

7.6

1.8

4.2

-20 -10 0

2.7

FY13

FY14

FY15

FY16

Public Sector Bank Private Sector Banks Foreign Sector Banks

All SCBs

Public Sector Bank

Private Sector Bank

Foreign Banks

All SCBs

Restructured standard advances to total advances

GNPA to total advances

Source: RBI data and Dun & Bradstreet Research

Amongst the major sectors, the industrial sector showed a steep rise in the GNPA ratio at 11.9%, followed by agriculture, services and retail sectors with GNPA ratio as 6.0%, 5.8% and 1.8% respectively during FY16.

Asset quality in major sectors (y-o-y growth %)

15

11.9

10

6.0

5.8

5

1.8

0

Agriculture

Industries

Services

Retail

FY13 FY14 FY15 FY16

Source: RBI data and Dun & Bradstreet Research

Profitability Due to enforcement of balance sheet cleaning activities like risk provisions and write-offs, return on assets (RoA) declined sharply to 0.4% in FY16 from 0.8% in FY15. On similar lines, return on equity reduced to 4.8% in FY16 from 9.3% in FY15.

XX

Trend in Return on Assets (RoA) and Return on Equity (RoE)

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

14

12

10

8

6

4

2

0

FY13

FY14

FY15

FY16

RoA

RoE (RHS)

Source: RBI data and Dun & Bradstreet Research

Factors Shaping the Indian Banking Industry

Untapped Opportunity – size of Indian market for financial services With a population base of ~ 1.3 billion, with ~50% being in the 15-25 age bracket, India is a huge and growing market for financial services. (Source: Census India). Financial Inclusion is the key catalyst for the next phase of growth in the banking sector. It aims at a widespread of financial services to those people and enterprises that still do not have any access to financial sector services. The objective is to promote financial literacy and consumer protection amongst the masses so that they can take correct financial decisions as this will also help in overall economic progress of the country. India possesses immense opportunity for the growth of financial inclusion as the percentage of banking population accounts for only 53.1% as compared to 93.6% in the United States and 98.8% in Germany for 2015. The proportion of adult population with individual bank accounts has gone up from 35% in 2011 to 53% in 2015.

XXI

Growth in number of ATMs and offices across different regions in India Banks are increasingly adding more number of ATMs and branches in the rural, semi-urban areas with the aim for inclusive growth. The total number of ATMs in India has grown from 181,252 in FY15 to 198,952 in FY16 reflecting an approximately 10% growth. As of Mar 2016, ATMs of all SCBs in rural and semi urban areas accounted for 44% of the total ATMS in the country. Looking at the CAGR of the ATMs from 2011-2016, rural areas have witnessed maximum growth of 37% followed by semi-urban areas with 24%, the overall CAGR of all SCBs in India stood at 22%.

ATM network by area as on end of March, 2016

40

35

31.8

30

25

18.7

20

15.8

13.2

15

9.9

10

5

0

Metro

Urban

Semi-Urban

Rural

Total

Source: RBI data and Dun & Bradstreet Research

The total number of bank offices in India has grown to 132,574 in FY16 compared to 125,863 in FY15. The overall bank branches grew by 5.3% in FY16, with rural areas accounting for the largest share at 38%.

Functioning Bank Branches as at the end of March, 2016.

8.0

7.3

7.1

6.7

7.0

6.0

6.0

5.2

5.0

4.0

3.0

2.0

1.0

0.0

Metro

Urban

Semi-Urban

Rural

Total

Source: RBI data and Dun & Bradstreet Research

Role of Regulators and the Government - Emergence of Differentiated Banking The Government and regulators play a pivotal role in providing an enabling environment for sustainable growth of the financial sector. The Indian Government’s policy around the financial sector is the focus on financial inclusion. The government has undertaken various initiatives to push financial inclusion, this includes setting up of 25% bank branches in unbanked areas, driving ‘Banking for all’ by 2018 initiative under Pradhan Mantri Jan Dhan Yojana (PMJDY) and granting loans to small business under Micro Units Development & Refinance Agency Ltd (MUDRA) scheme amongst others. Two years back, the government had launched PradhanMantri Jan Dhan Yojna (PMJDY), the biggest financial inclusion initiative in the world.

XXII

Accounts opened under Pradhan Mantri Jan Dhan Yojana (PMJDY) as on 17th August, 2016.

in mn

No of Accounts With Zero Balance

No of Rupay Debit Card

Sectors

Rural

Urban

Total

Public Banks Private Banks

105.2

82.7

187.9

152.1

46.3

5.1

3.3

8.4

7.8

3.1

Total

110.3

86.0

196.3

159.9

49.4

Source: PMJDY report 17th August, 2016

In order to expedite the penetration of financial services in the unbanked regions of India, RBI has created a framework for licensing payment banks/small banks and differentiated banks. These local area banks, payment banks and small banks are expected to meet credit and remittance requirement of the small businesses, unorganized sector, low income households, farmers and migrant workforce. During FY16, in all, 23 new banking licenses were granted which included two universal banks, 11 payment banks and 10 small finance banks. The two universal banks have started their operation during 2015; amongst the small finance banks, Capital Local Area Bank has commenced its operations in April 2016 and others are likely to start their business by Sep 2016. Role of Technology – Digital Banking The last few years have witnessed a transition of banking from a predominantly traditional business to more of a customer focused one. An efficient payment system can be envisaged as the lubricant which speeds up liquidity flow in the economy, thereby creating necessary impetus for economic growth. Customer involvement through the most relevant channels has become of key importance for maximizing customer value and creating newer and more innovative revenue streams for banks. Although some concerns regarding the health of the Indian banking sector prevail, there is a widespread of optimism in the Indian economy. Taking advantage of digital technology and leveraging its potential to transform the banking sector is catching the attention of banking sector leaders. There are enormous opportunities present in the form of internet banking, mobile banking, mobile wallets, cloud computing, information security, and virtualization amongst others, in order to make financial infrastructure smarter, safer and faster. With the new government’s vision for digital India, regulatory moves have positioned Indian banking for digital transformation.

Volume (Million)

Prepaid Payment Instruments (m-Wallets, PPI cards, Paper Vouchers)

Retail Electronic Clearing (ECS,NEFT,IMPS)

Cards (debit, Credit)

Year

RTGS

Mobile Banking

2015-16 2014-15 2013-14 2012-13 2011-12

98.4 92.8 81.1 68.5 55.1

3,141.5 1,687.4 1,108.3

10,038.7 8,424.0 7,219.1 6,174.5 5,731.6

748.0 314.5 133.6

389.5 171.9

94.7 53.3 25.6

694.1 512.4

66.9 30.6

Source: RBI data and Dun & Bradstreet Research

Advent of FinTech Ecosystem The Indian banking industry has embarked upon its digital journey and is catching up quickly with its global peers in terms of technology adoption. In recent years, the phrase ‘FinTech’ has gained a lot of buzz in the Indian financial services sector, media, start-ups and entrepreneurial circles. FinTech are technology based companies that enable and/or collaborate with financial institutions to create highly integrated ecosystems that infuse expertise, rich experience, advanced technology to make existing financial systems more efficient and effective. The advent of the FinTech ecosystem in the Indian banking sector has begun to transform the lives of millions; therefore integrating FinTech in the Indian banking architecture has become a top priority for the banks.

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Some of the new age fintech technologies include following services:- 1) E-Wallets/ M-wallets

As internet and mobile banking are revolutionizing the banking industry, mobile wallets that hold money digitally have brought about changes in the mode of transactions being carried out in the country. Prepaid Payment Instruments (PPIs) including e-Wallets/ m-Wallets serve as a mode of online payment system, where a registered customer can pre-load a certain amount of money with any service provider, which can be used for various bill payments, movie tickets and recharges, etc. 2) Biometrics The transition from physical money to e-money has also led to the emergence of safer and risk free management processes. Biometric technologies analyze unique biological traits that differentiate one human being fromanother, such as fingerprints, the retina or iris or the pattern of an individual’s voice. Few banks in India have installed ATMs that require customer finger print (biometric) instead of debit/credit card & PIN to dispense cash. Adoption of biometrics into the security infrastructure of the banks would safeguard customers from such unforeseen incidents in future. 3) Unified Payment Interface Moving towards the goal of attaining ‘Cashless Economy’, RBI has partnered with National Payments Corporation of India (NPCI) and launched Unified Payment Interface (UPI) on 26th Aug, 2016. It is a mobile payment solution, where customers can instantly transfer funds to different bank accounts without having to share sensitive information like bank account numbers during the transaction. Currently, 21 banks have joined the new payment solution. More banks are expected to join UPI app platform.

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4) Peer 2 Peer Lending P2P lending is a form of crowd funding activity where small amounts of money are raised through a large number of people. It will serve as an online platform that matches lenders with the borrowers in order to provide unsecured loans. A fee is charged to both the parties and the fee collected is for services provided like collecting loan repayment and doing preliminary assessment on the trustworthiness of the borrower. During 2015, there were around 20 online P2P lending companies and approximately 30 start-ups in the space of P2P lending in India. 5) Bitcoin Bitcoin is a type of virtual currency in which crypto technology is used to regulate generation and management of units of currency. Being a decentralized currency, the fund transfers promise opportunities in reducing cost and fasten the speed of transactions. 6) Blockchain Blockchain is a distributed ledger technology (DLT) where all bitcoin transactions executed are registered. It thus provides insights about facts like how much value belonged to a particular address at any point in the past.

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Non-Banking Financial Companies

The Non-Banking Financial companies (NBFCs) sector forms an integral part of the Indian financial system. The sector plays a vital role in India’s economic growth and development. It aids in boosting ‘Financial Inclusion’ initiative by lending services to the unbanked population in rural/ semi-rural or few urban areas, also provide services to the Micro, Small and Medium Enterprises (MSMEs) segment. They provide product and services such as personal loans, housing loan, gold loan, insurance and loan for purchasing commercial vehicles, machinery, and farm equipment amongst others. NBFCs ability to understand their customer profile, their credit portfolio and deliver on customised products and services makes them as one of the fastest growing sectors providing innovation in financial products. Although, few of the products and services provided by NBFCs are similar to those of banks, NBFCs are still at a disadvantage in comparison. As they work under certain regulatory constraints which restrict their business portfolio. In the time, when now all banks are forced to clean up their balance sheets especially in terms of lending activities, the role of NBFCs becomes more important as the push towards entrepreneurship is increasing creating further job opportunities. Thus, there is a need for uniform regulations, practices and level playing field for NBFCs in India. In order to capitalise on their full potential with greater efficiency there is need to address the framework of this sector in order to meet ever growing financing need of the economy. NBFCs are rapidly gaining importance as financial intermediary in the retail finance. Their contribution to the economy has significantly improved standing at 13% as on FY15. The growth is driven not only by the traditional NBFC products like commercial vehicle financing but also in the areas of loans financing like personal and housing etc. The success of the sector is attributed to the cost efficiency, bad debt control, customised products and better customer services. Along with on-going stress in the public sector banks due to mounting debts, the lending potential of the banks are going to deteriorate further, thereby providing opportunity for NBFCs to increase their reach.

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The number of NBFCs registered with the RBI continues to decline - The total number of NBFCs registered with RBI is witnessing marginal decline ~3% over the years. As of March 31, 2016, there were 11,682 NBFCs whereas in Mar 2015 the count was 11,842 as compared to that in Mar 2014 number of NBFCs was 12,029. The decline in the numbers is the result of consolidation in the sector and largely because of cancellation of Certificates of Registration (CoR). As on Jan 01, 2017 there were 2,903 list of NBFCs cancelled with RBI. Of the 11,682 NBFCs, 202 are deposit accepting in nature (NBFC-D) and 11,480 are non-deposit accepting NBFCs (NBFCs –ND). There are 220 systematically important non deposit accepting NBFCs (NBFCs-ND-SI).

Category

As on Sep 31, 2016

As on March 31, 2016

As on March 31, 2015

As on March 31, 2014

NBFCs

11,555

11,682

11,842

12,029

NBFCs-D NBFCs-ND

188

202

220

241

11,367

11,480

11,622

11,788

NBFCs-ND-SI

220

220

200

NA

Ownership pattern of NBFCs (No. of Companies) NBFCs are broadly classified under categories based on their liability structure – deposit taking (NBFC-D), Non-deposit taking (NBFC-ND) and systematically important non-deposit taking (NBFC-ND-SI) which are subjected to stringent norms and provisioning requirements. Following is the ownership pattern of NBFC-D and NBFC-ND-SI

2015 NBFCs-D

2016 NBFCs-D

2015 NBFCs-ND-SI

2016 NBFCs-ND-SI

Ownership

Government Companies

7

5

10

16

Non-Government Companies Public limited Companies Private Limited Companies

211 209

194 188

190 105

193 105

2

6

85

88

Total No. of Companies

220

199

200

209

Financial Performance of the NBFC sector The financial performance of the NBFC sector has remained largely unchanged for past two years. The aggregate balance sheet of the sector is expanded by 15.5 % in FY16 on a y-o-y basis as compared to that of 15.7 % in March 2015. NBFCs as a sector managed to maintain its borrowings levels, as the total borrowings increased by 15.3% in FY16 as compared to that of 16.9% in FY15. Whereas, loans and advances increased by 16.6% in FY16 from growth of 17.1% in FY15. Net profit as a percentage to total income displayed similar performance at 18.3% for FY16 as well as FY15. Return on Assets (RoA) also showed similar performance of 2.2% for both FY15 and FY16. Return on Equity (RoE) increased marginally to 10.6% in FY16 from 10.3% in FY15.

Consolidated Balance Sheet of NBFC sector (YoY growth in %) Particulars Mar 31, 2015 Mar 31, 2016 Total Borrowings 16.9 15.3 Current Liabilities & provisions 4.1 31.8 Loans & Advances 17.1 16.6 Investments 11.5 10.8 Total Income 15.3 15.8 Total Expenditure 15.5 15.8 Net Profit 15.0 15.6

Balance sheet performance of NBFCs-D NBFCs-D regulations are tightened so as to allow only sound and well-functioning companies accept public deposits. The balance sheet expanded by 29.2 % in FY16. Loans & advances, which account for 90% of the asset side registered significant growth of 33.1% increased to 2,117 bn from 1,590 bn in FY15. Investment activities also rose by 24% from 69 bn to 85 bn

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in FY16. Banks are the major source of funds for NBFCs-D increased to 659 bn approx. 19.3% growth from 552 bn in FY15. Debentures being the second major source of funding, witnessed a hike of 38.6% during FY16 grew from 389 bn to 539 bn in FY16. Total income recorded a growth of 26.8% over FY15. Balance sheet performance of NBFCs-ND-SI The balance sheet of NBFCs-ND-SI grew by 10.6% in FY16. Loans & Advances grew by 12.5% from 9,516 bn to 10,709 bn over FY15. Total borrowings grew by 9.8% from 9,411 to 10,335 in FY16. During FY16, funds were mainly raised through debentures, borrowings from banks and commercial papers. Investments displayed marginal growth of 0.5% in FY16. Asset quality & capital Adequacy The NBFC sector registered a credit growth of 15.5% in FY16. The quality of assets of the sector continued to deteriorate since 2012. However, the NPAs of NBFCs are lower than that of the banks.

Gross NPA to Gross Advances Ratio

0 1 2 3 4 5 6 7 8 9

8.4

4.8

4.5

3.9

4.1

3.8

3.3

3.1

3.2

2.9

2012

2013

2014

2015

2016

NBFCs Banks

Source: RBI, Dun and Bradstreet Research

The CRAR of the NBFC sector for FY16 remained well above the regulatory guidelines having minimum requirement of 15% of their risk weighted assets. GNPAs of the NBFC sector for FY16 as a percentage of total advances stood at 4.5% from that of 5.1% in Sep’15. NNPAs as a percentage of total advances displayed similar performance for FY15 & FY16 and stood at 2.5%.

Asset Quality (In %)

0 1 2 3 4 5 6 7 8 9 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16

Asset Quality (in %) NNPA to Total Advances Asset Quality (in %) GNPA to Total Advances

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Exposure to NBFCs The threemost dominant sectors in the Indian financial systemare Schedule Commercial Banks (SCBs) followed by Insurance companies and Asset Management Companies (AMCs – Mutual Funds). These three sectors constitute to more than 80% of the financial system. While SCBs were the largest gross receivers of the funds, NBFCs were the largest net receivers of the funds from rest of the financial system as of March 31, 2016.

Exposure of SCBs, AMC-MFs and insurance companies to NBFCs. Particulars Mar 31, 2012 Mar 31, 2013

Mar 31, 2014

Mar 31, 2015

Mar 31, 2016

SCBs

1,513

1,453

1,516

1,595 1008 1080

2,029 1,489 1,038

AMC – MFs

425 780

624 880

756 965

Insurance Companies

NBFC – Account Aggregator As all the financial assets of the individuals like bank deposits, mutual funds, fixed deposits and insurance policies etc., are held under purview of different financial regulators, entities get a distributed view of their financial assets. For this purpose, NBFC – Account Aggregator will provide consolidated information of all the accounts held by the customer in organised manner. The draft was issued by RBI in March 2016. Following are the guidelines for the business of the account aggregator – • It will not support any transactions in financial assets by the customer. • It will not undertake any business other than that of account aggregation. • Pricing of the services will be as per board approved policy. • Proper documentation of agreements/ authorisation will be ensured between the aggregator, customer and financial service provider. • The information will only be shared with the customer or any other person authorised by the customer. • Terms and conditions of the license will be applicable for customer protection, grievance, redressal, data security, audit control, corporate governance and risk management. Regulatory requirements for the NBFC sector The NBFC sector plays a significant role in our financial system as it mirrors few of the banking operations which are critical in bearing the financial stability of the country. According to the Department of Non-Banking Regulation (DNBR) 2015-16, the aim of the DNBR was harmonisation of the regulation across NBFCs and banks in order to stream line the processes. During the year, few of the steps undertaken include early recognition of financial stress; speedy moves for resolution and recovery for lenders; guidelines in formulation of Joint Lenders’ Forum (JLF) and corrective action plan (CAP); assessing risk weights assigned to exposures to central/ state government/s and claims guaranteed by state government; refinancing of project loans; strategic debt restructuring; risk weights to investments in the corporate bonds. The process for issuing CoR was also simplified and rationalised; documents to be submitted were reduced from 45 to eight. Further, NBFCs were divided into two groups Type I & II, the type I NBFC does not accept public funds and do not have customer interface. Conclusion New age digital customers and rapid technological innovations have changed the face of businesses are conducted today. To have competitive advantage NBFCs need to leverage on the new avenues of customer interaction. In order to deliver differentiated customer experience, NBFCs can leverage on partnerships with other companies. Use of technologies like big data analytics, can help create synergies between the product – customer requirement, analyse customer portfolio etc. Social media engagement, this helps to attract larger customer base, proactive end to end visibility to customer, faster leads generation etc. Going forward, with the government’s initiatives like ‘Make in India’, ‘Start up India’, ‘Digital India’ amongst others is expected to boost development in India. NBFCs are likely to benefit from underlying trends and developments in the Indian market. As the traditional banks already under stress; NBFCs would be of vital importance and can fill the necessary credit demand gap. The NBFCs therefore need to be well integrated in the financial system to match the growing needs of the economy. Furthermore, the Indian consumer is increasingly adapting to the digital technology in day to day life. Thus, NBFCs need to rethink on their strategies to enhance their product portfolio, process and customer experience. Additionally, they need to leverage on digital data for better credit decisions and social media to serve customers better etc. We hope that the forthcoming changes will further strengthen the robustness of the NBFC sector.

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