INNOVATE TO WIN
The Indian Experience
P Jayendra Nayak
1
Estimates of Market Share based on linear projection
100%
CAGR
12.30%
20.90%
90%
25%
32.10%
17%
63.20%
15%
4.70%
80%
70%
60%
50%
80.20%
73.00%
40%
30%
20%
10%
7.50%
6.10%
0%
2000
2013
Foreign Banks
Public Sector Banks
2025
Private Sector Banks
The share of private sector banks has increased from 12% in 2000 to 21% in 2013 and,
if linearly projected, will grow to 32% in 2025
2
Net interest Margin
Avg. net interest margin (in % per annum Dec 2013)
Private sector banks are performing better in terms of their NIMs. In 2013 the average NIM
of private sector banks was 50 basis points higher than of the SBI group and 120 basis points
higher than of other PSU banks.
3
Fee Income to total income in %
The ratio of Fee income to total income has been highest for Private sector banks
4
Net Profit per employee
Net profit per employee (INR mn)
2.50
2.00
1.50
1.00
0.50
0.00
Highest manpower productivity in private sector banks
Net profit per employee about four times that of other bank categories
5
Return on Assets
The gap in RoA between the new private sector banks and other bank categories has steadily
widened in recent years
6
Price to book ratio
Public sector banks vs Private sector banks
Price-to-book ratio
Public Sector Banks vs. Private Sector Banks
3.5
3
2.5
2
1.5
1
0.5
0
2008
2009
2010
Public Sector Banks
2011
2012
2013
Private Sector Banks
The investors have rewarded the Private sector banks with about three times the valuations
7
Why did this happen?
Four key drivers of success of new private sector banks
Technology for
Operational
Efficiency
Relationship
Management
Channels
Key drivers of success
of new private sector
banks
Innovation needs to be
identified within these
key drivers
Automated
Transactions
Channels
Sales &
Distribution
Channels
8
Outsourcing from the branch
Centralized customer data & transactions processes
Degree of centralization
Typical new private
Typical public
sector bank
sector bank
Banking activities
• Demand Draft / Pay Order issues
100%
100%
• Account opening
• Inward clearing queries
• Cash reconciliation
80%
• Payment of branch bills
• Outward clearing data entry and
verification
60%
60%
• Internal transfers processing
• Printing bulk Demand Drafts and Pay
Orders
• System related activities, e.g.
commissions and charges
20%
• Tax Deduction at Source (TDS) certificates
• Select Inter Branch Reconciliation (IBR)
transactions
• Processing select customer requests, e.g.
ATM cards, PIN mailers
10%
0% 10%
100%
0% 10% 50%
100%
% of centralized activities
9
Private sector banks centralize customer transaction data
Rapid growth in ATM and POS network
Distribution of bank branches
Point of Sale Terminal
325
44,535
14,638
338,276
749,309
83,888
Private Sector
Public Sector
Foreign Banks
Private Sector
Public Sector
Foreign Banks
Distribution of ATM networks
10,889
51,490
128,811
Private Sector
Public Sector
Foreign Banks
Private sector banks have just 15% of the branch network, but 29% of ATMs
They also account for 66% of the POS terminals.
10
Relationship managers for the Mass Affluent and Sales
Force for Mass Customers
New Private Sector Banks have made strong
inroads into the mass affluent segment
100%
90%
80%
1%
2%
7%
3%
7%
26%
27%
70%
60%
50%
26%
Annual household Income (INR p.a.)
> 1,000,000
500,000 –
1,000,000
200,000 –
500,000
“Affluent”
“Mass
Affluent”
40%
30%
64%
20%
90,000 –
200,000
“Mass”
37%
< 90,000
10%
0%
Industry
Typical Pvt Sector Bank
11
Insurance Premium
Insurance premium volume (INR bn)
1,600
Insurance premium %
100%
80%
1,200
52
930
642
59
64
60%
736
800
40%
400
588
20%
516
527
FY14
FY15
48
41
36
0%
0
FY13
Public Sector Banks
Private Sector Banks
FY13
Public Sector Banks
FY14
FY15
Private Sector Banks
Share of insurance premium of public sector banks has been steadily decreasing.
12
Mutual Fund earnings
Gross mutual fund earnings (INR mn 2014-15)
5,800
1,168
Private Sector
12,836
Public Sector
Foreign Banks
Private sector banks’ share is about 65% of the total mutual fund earnings
13
Cash management
Cash Management throughput (INR bn)
100%
5,000
10,000
20,000
22,000
49,000
90%
80%
70%
60%
4,000
50%
40%
30%
4,000
11,000
20%
19,000
10%
0%
2002
2008
Foreign banks
Pvt Sector Banks
2014
PSU Banks
Private sector banks have seen an explosive growth in the provision of cash management
services
14
Credit Cards
Number of Credit Cards outstanding (Mn)
Credit card spends (Rs in Mn)
30
25
4
26,834
20
4.3
63,578
15
12.5
12.1
10
5
100,577
1.2
8
4.8
0.8
0
1.5
2002
2008
Foreign
Private Sector
2015
Foreign
Private sector banks
Public sector banks
Public sector
More than half of the total credit card spends are generated by the private sector banks
15
A Benign Regulator?
The difference between medicine and
poison is dosage
Dog lovers and their pets soon begin to
resemble one another.......
......So do zoo wardens and their wilder
animals
16
THANK YOU
17