Executive Summary……………….….…….3
Advantage India…………………..….……...4
Notable Trends……………….….…..….….15
Strategies Adopted……………...…………22
Useful Information……….......…………….34
EXECUTIVE SUMMARY
Robust asset growth Value of public sector bank assets increased to US$ 1.56 trillion in FY18 from US$ 1.52 trillion in FY17.
Total lending has increased at a CAGR of 10.94 per cent during FY07-18 and total deposits have increased at
Growing lending and
a CAGR of 11.66 per cent, during FY07-18 and are further poised for growth, backed by demand for housing
deposit and personal finance.
As of September 2018, total number of ATMs in India increased to 205,866 and is further expected to
Higher ATM penetration
increase to 407,000 by 2021.
RBI has allowed, regional rural banks with net worth of at least US$ 15.28 million to launch internet banking
Rising rural penetration facilities.
As of September 2018, the Government of India has launched India Post Payments Bank (IPPB) and has
opened branches across 650 districts to achieve the objective of financial inclusion.
Notes: ATM - Automated Teller Machine, FIP – Financial Inclusion Plan, RBI – Reserve Bank of India
Source: India Banking Association, Reserve Bank of India
ADVANTAGE INDIA
ADVANTAGE INDIA
ADVANTAGE
INDIA
Rising fee incomes improving the Wide policy support in the form of
revenue mix of banks. private sector participation & liquidity
infusion.
High net interest margins, along with
low NPA levels, ensure healthy Healthy regulatory oversight & credible
business fundamentals. Monetary Policy by the Reserve Bank
of India (RBI) have lent strength &
stability to the country’s banking sector.
MARKET OVERVIEW
EVOLUTION OF THE INDIAN BANKING SECTOR
Imperial Bank expanded its In 2003, Kotak Mahindra Finance Ltd received a
network to 480 branches. banking license from RBI and became the first NBFC to
Closed market In order to increase penetration be converted into a bank.
State-owned Imperial Bank of in rural areas, Imperial Bank In 2009, the government removed the Banking Cash
India was the only bank was converted into State Bank Transaction Tax which had been introduced in 2005.
existing. of India.
2000 2016
1921 1935 1936-1955 1956-2000
onwards onwards
RBI was established as the central bank of Nationalisation of 14 large commercial banks in NABARD sanctioned US$ 2.84 billion loan
country. 1969 & 6 more banks in 1980. to National Water Development Agency for 50
Quasi central banking role of Imperial Entry of private players such as ICICI irrigation projects in October 2016.
Bank came to an end. intensifying the competition. As per RBI, as of November 30, 2018, India
Gradual technology upgradation in PSU banks . recorded foreign exchange reserves of
approximately US$ 393.72 billion.
Credit off-take has been surging ahead over the past decade, aided GrowthVisakhapatnam
in credit off-takeport
overtraffic
past (million
few years
tonnes)
(US$ billion)
by strong economic growth, rising disposable incomes, increasing
consumerism & easier access to credit.
1,600
*CAGR 10.94%
During FY07-18, credit off-take grew at a CAGR of 10.99 per cent.
As of Q3 FY19*, total credit extended surged to Rs 93,751.17 billion 1,400
(US$ 1,299.39 billion). Demand has grown for both corporate & retail
1,347.18
loans; particularly the services, real estate, consumer durables &
1,290.68
1,200
agriculture allied sectors have led the growth in credit.
1,180.19
1,149.19
1,124.86
Credit to non-food industries increased by 13.1 per cent year-on-year 1,000
1,038.36
1,014.75
1,001.73
reaching Rs 82,043 billion (US$ 1,137.12 billion) in January 18,
2019.
894.16
800
705.44
600
620.28
600.65
400
429.92
200
FY19*
FY18
FY 07
FY 08
FY 09
FY 10
FY 11
FY 12
FY 13
FY 14
FY 15
FY 16
FY 17
Note: *CAGR till FY18, * - as of December 2018
Source: Reserve Bank of India (RBI), Aranca Research
During FY07–18, deposits grew at a CAGR of 11.66 per cent and GrowthVisakhapatnam
in deposits over
port
thetraffic
past few
(million
yearstonnes)
(US$ billion)
reached US$ 1.6 trillion by FY17. Deposits at the end of Q3 FY19*
stood at Rs 120,818.92 billion (US$ 1,866.22 billion).
2,000
CAGR 11.66%
Strong growth in savings amid rising disposable income levels are
the major factors influencing deposit growth. 1,800
1,866.22
1,781.12
Access to banking system has also improved over the years due to 1,600
1,599.34
persistent government efforts to promote banking-technology and
promote expansion in unbanked and non-metropolitan regions. 1,400
1,466.47
1,459.05
At the same time India’s banking sector has remained stable despite
1,314.99
1,287.90
1,200
1,267.61
global upheavals, thereby retaining public confidence over the years.
1,182.45
1,000
Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY), have
961.83
increased to Rs 926.78 billion (US$ 12.85 billion) and 336.6 million 800
854.28
accounts were opened in India^.
807.63
600
575.72
400
474.18
200
FY19*
FY18
FY 06
FY 07
FY 08
FY 09
FY 10
FY 11
FY 12
FY 13
FY 14
FY 15
FY 16
FY 17
Note: ^ - as of February 27, 2019, * - as of December 2018, CAGR till FY18
Source: Reserve Bank of India (RBI), Aranca Research
1,557.04
1,518.46
2,000
1,400 1,797.58
1,421.40
Assets of public sector banks, which account for 66.03 per cent of
1,347.90
1,305.00
the total banking assets (including public, private sector and foreign 1,200 1,570.54
banks). 1,500
1,140.20
1,000
Private sector assets expanded at a CAGR of 12.68 per cent during
FY13–18, while foreign banks posted a growth of 4.25 per cent 800
during FY13–18. 1,000
600
666.99
Foreign banks assets reached Rs 8.65 trillion (US$ 134.12 billion) in
558.92
FY18.
488.10
400
134.12
125.52
500
123.50
121.10
122.60
415.10
104.50
369.90
325.90
200
0 0
FY13 FY14 FY15 FY16 FY17 FY18
Public sector banks accounted for over 64.98 per cent of interest Interest income
Visakhapatnam
growth inport
Indian
traffic
banking
(million
sector
tonnes)
(US$ billion)
income in the sector in FY18.
Public sector banks lead in interest income growth with a CAGR of 120
6.61 per cent over FY09-18.
110.7
Overall, the interest income for the sector (including public, private
105.6
100
103.4
102.9
102.7
102.5
102.2
sector and foreign banks) has grown at 7.55 per cent CAGR during
FY09-18.
76.4
billion in FY18.
67.1
In FY18, private banking sector (interest income) reached US$ 47.39 60
billion. Interest income of foreign banks stood at Rs 503.98 billion
57.6
(US$ 7.8 billion) during the same period.
47.4
40
43.3
36.8
34.1
31.4
30.7
28.7
20
20.2
18.2
17.9
8.0
7.8
5.8
5.9
6.4
7.6
7.7
7.8
7.8
8.3
0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Public sector banks account for about 58.92 per cent of other ‘Other income’ growth inport
Visakhapatnam Indian banking
traffic sector
(million tonnes)
(US$ billion)
income.
‘Other income’ for public sector banks has risen at a CAGR of 8.01 20
per cent during FY09-18.
18
‘Other income’ for public sector banks stood at US$ 17.80 billion in
17.80
17.66
FY18. 16
Overall, ‘other income’ for the sector has risen at 7.54 per cent 14
CAGR during FY09-18.
12
12.39
In FY18, private banking sector (other income) was US$ 10.37
12.35
billion. Foreign banks (other income) reached Rs 131.43 billion (US$
10.80
10
10.70
10.50
10.37
10.20
10.00
9.85
2.04 billion) during the same period.
8.90
8
7.40
6
6.70
5.90
5.50
5.30
4
4.30
4.30
3.70
3.10
2
2.10
2.30
2.30
2.10
2.20
2.40
1.86
2.46
2.04
0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
2.5
100
2.0 88.36
80
1.98 81.99 82.28 82.99
1.88
75.14 75.14
71.49 70.89
1.5 60 67.65 68.96
1.37
1.0 1.17 40
0.86
0.5 20
NA
0.0 0
FY12 FY18 FY12 FY18
Public Sector Private Sector Foreign Sector SBI & its associates Nationalised Bank Public Sector
Private Sector Foreign Sector
Loan-to-Deposit ratio for banks across sectors has increased over the years.
Private and foreign banks have posted high return on assets than nationalised & public banks.
This has prompted most of the foreign banks to start their operations in India.
Note: Data for Return on Assets and Loan to Deposit Ratio is in percentage, NA - Foreign Banks data for FY18 not available, Foreign banks data expected to be updated by March 2019
Source: Reserve Bank of India (RBI), IBA Indian Banks Association
NOTABLE TRENDS
NOTABLE TRENDS IN THE BANKING INDUSTRY
SECTOR … (1/4)
Indian banks are increasingly focusing Total lending has increased at a CAGR As of September 2018, total number of
on adopting integrated approach to risk of 10.94 per cent during FY07-18 and ATMs in India increased to 205,866
management. total deposits has increased at a and is further expected to increase to
CAGR of 11.66 per cent, during FY07- 407,000 ATMs in 2021.
Banks have already embraced the
international banking supervision 18 & are further poised for growth, The digital payments system in India
accord of Basel II.; interestingly, backed by demand for housing and has evolved the most among 25
according to RBI, majority of the banks personal finance. countries, including UK, China and
already meet capital requirements of India’s retail credit market is the fourth Japan, with the IMPS being the only
Basel III, which has a deadline of system at level 5 in the Faster
largest in the emerging countries. It
March 31, 2019. Payments Innovation Index (FPII).
increased to US$ 281 billion on
India stepped up to 28th position on the
Most of the banks have put in place the December 2017 from US$ 181 billion
government's adoption of e-payments
framework for asset-liability match, on December 2014.
ranking in 2018.
credit & derivatives risk management.
By 2022, digital assistants, social
media and third party channels are
projected to act as primary channels
for banking.
Source: Indian Bank's Association, Indian Banking Sector 2020, Aranca Research, FIS report, Bank for International Settlement (BIS), 10th annual 'Innovation in Retail Banking' report by
Infosys Finacle
To capture the rural areas The increasingly dynamic With entry of foreign banks, The effects of
Indian banks are expanding business scenario & competition in the Indian demonetisation are also
their businesses. According financial sophistication has banking sector has visible in the fact that bank
to RBI, Under Financial
increased the need for intensified. credit plunged by 0.8 per
Inclusion Plan, 598,093
customised exotic financial cent from November 8 to
banking outlets were Banks are increasingly
provided in villages as on products. November 25, 2016, as
looking at consolidation to
March 2017. US$ 9.85 billion were paid
Banks are developing derive greater benefits such
As of September 2018, by defaulters. As per RBI, a
innovative financial products as enhanced synergy, cost
Ministry of Finance, total of US$ 237.17 billion
& advanced risk take-outs from economies
Government of India was deposited in banks till
management methods to of scale, organisational
launched the Financial August 30, 2017.
capture the market share. efficiency & diversification
Inclusion Index. This index
will measure access, usage of risks. Debit cards have radically
Bank of Maharashtra tied up
and quality to financial replaced credit cards as the
with Cigna TTK, to market
services. preferred payment mode in
their insurance products
As of September 2018, India, after demonetisation.
across India.
Department of Financial As of September 2018,
Services (DFS), Ministry of debit cards garnered a
Finance and National share of 87.14 per cent of
Informatics Centre (NIC) the total card spending.
launched Jan Dhan
Darshak as a part of
financial inclusion initiative.
It is a mobile app to help
people locate financial
services in India.
Source: Indian Bank's Association, Indian Banking Sector 2020, Aranca Research
Focus towards Jan Dhan Yojana Wide usability of RTGS, NEFT and IMPS Know Your Client
Key objective of Pradhan Mantri Jan Real Time Gross Settlement (RTGS) RBI mandated the Know Your
Dhan Yojana (PMJDY) is to increase and National Electronic Funds Transfer Customer (KYC) Standards, wherein
the accessibility of financial services (NEFT) are being implemented by all banks are required to put in place a
such as bank accounts, insurance, Indian banks for fund transaction. comprehensive policy framework in
pension, credit facilities, etc. mostly to order to avoid money laundering
Securities Exchange Board of India
the low income groups. activities.
(SEBI) has included NEFT & RTGS
As of September 2018, the payment system to the existing list of The KYC policy is now mandatory for
Government of India has made the methods that a company can use for opening an account or making any
Pradhan Mantri Jan Dhan Yojana payment of dividend or other cash investment such as mutual funds.
(PMJDY) scheme an open ended benefits to their shareholders &
scheme and has also added more investors.
incentives.
The number of transactions through
Under the Jan Dhan Yojana, Rs 926.78 IMPS increased to 1.56 billion in
billion (US$ 12.85 billion) were volume and amounted to Rs 14.14
deposited and 347.3 million accounts trillion (US$ 195.98 billion) in value
were opened in India^. between April 2018-February 2019.
221.0 million ‘Rupay’ debit cards were
issued to users^.
Digital influence in the Indian banking sector has been growing India’s Digital Lending Forecast (US$ billion)
faster due to the rising digital footprint.
India’s digital lending stood at US$ 75 billion in FY18.
400
Digital lending is estimated to reach US$ 1 trillion by FY2023 driven
by the five-fold increase in the digital disbursements.
350
350
Digital lending to micro, small and medium enterprises (MSMEs) in
India is expected to reach US$ 100 billion by 2023.
300
270
250
200
200
150
150
100
110
75
50
58
46
33
0
FY19E
FY20E
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
Note: E – Estimate, Omdiyar Network and the Boston Consulting Group (BCG)
Source: Digital Lending Report 2018 - BCG
Source: PWC, ‘Searching for new frontiers of growth’, Aranca Research, Reserve Bank of India
STRATEGIES
ADOPTED
STRATEGIES ADOPTED
Similarly State Bank of India unveiled ‘SBI Mingle’, as social media banking platform for Twitter &
Facebook users.
Banks protect margins by promoting usage of efficient technologies like mobile & internet banking.
Increased use of State Bank of India has created SBI Digi Bank, which has a financial superstore, an online market place
technology and a digital bank for end to end digitisation for all products and services.
In March 2018, Kotak Mahindra launched Keya, India’s first integrated voicebot, which can understand both
Hindi and English powered by Nuance. Keya combines conversational intelligence with human-like natural
dialogue. It ushers a new era of consumer interaction.
Major banks tend to increase income by cross-selling products to their existing customers.
Cross-selling
Foreign banks have been able to grow business, despite a much lower customer coverage.
Capture latent demand Increasing tele-density and support of regulators have aided rural expansion.
As of November 2017, State Bank of India (SBI) is planning to set up more branches in Nepal and re-enter
Vietnam under its three-year aim of growing its international operations to 15 per cent of its total business.
Overseas expansion
Although at a nascent stage, private & public banks are gradually expanding operations overseas.
Source: Indian Bank's Association, Indian Banking Sector 2020, Aranca Research
GROWTH DRIVERS
AND OPPORTUNITIES
GROWTH DRIVERS OF INDIAN BANKING SECTOR
Favourable demographics The government passed the India currently spends 6 per Reserve Bank of India (RBI)
and rising income levels. Banking Regulation cent of GDP on has decided to set up Public
(Amendment) Bill 2017, infrastructure; NITI Aayog
India ranks among the top Credit Registry (PCR) an
which will empower RBI to expects this fraction to grow
six economies with a GDP extensive database of credit
deal with NPAs in the going ahead.
of US$ 2,597 in 2017 and information which is
banking sector. As per the Union Budget
economy is forecasted to
The Insolvency and 2018-19, the Indian accessible to all
grow at 7.3 per cent in
2018. Bankruptcy Code infrastructure sector stakeholders.
(Amendment) Ordinance, requires an investment of
The sector will benefit from 2017 Bill has been passed Rs 50 lakh crore (US$ 772 The Government of India is
structural economic stability by Rajya Sabha and is billion). planning to inject Rs 42,000
and continued credibility of expected to strengthen the crore (US$ 5.99 billion) in
Monetary Policy. banking sector^. Pradhan Mantri Vaya the public sector banks by
In May 2018, the Vandana Yojna March 2019 and will infuse
Government of India the next tranche of
Common Service Center The scheme was launched
provided Rs 6 trillion (US$ recapitalisation by mid-
(CSC) 93 billion) loans to 120 on March 28, 2018 to
provide social security to December 2018.
million beneficiaries under
The Government of India elderly people by providing
Mudra scheme. On January 01, 2018, new
plans to allow Common Rs 10,000 (US$ 155)
Service Centers (CSC) to pension per month. norms for restructuring of
existing loans to Micro,
offer banking services. The scheme has
subscription limit till 31st Small and Medium
March 2020. enterprises (MSMEs) have
The scheme has investment been released by the
limit of Rs 15 lakh (US$ Reserve Bank of India
23,274). (RBI).
Notes: GDP - Gross Domestic Product, KYC - Know Your Customer, RBI - Reserve Bank of India, NPA – non-performing assets, ^ - as of January 3, 2018
Source: World Development Indicators database by World Bank, WEO Update July 2018
Rising per capita income will lead to increase in the fraction of the India’s working age population (in million) and GDP per capita
Visakhapatnam port traffic (million tonnes)
Indian population that uses banking services. current (US$ )
2,000
1,939.61
1,500 1,606.04
1,461.67
1,000
860.13 886.92
802.01
500
0
2011 2015 2017
Population GDP-RHS
414.30
381.98
350
372.09
342.37 2,500 2,667
340.29
300
318.41
313.23
307.64
2,000 2,167
250
1,875
200 1,500
150
1,000
100
500
50
0 0
FY12 FY13 FY14 FY15 FY16 FY17* FY18** FY19*** 2010 2015 2020 2025
The real annual disposable household income in rural India is forecasted to grow at a CAGR of 3.6 per cent over the next 15 years.
GVA from India’s agriculture, forestry & fishing sector has grown to US$ 381.91 billion in 2018-19*** grew at a CAGR of 2.88 per cent over FY 12
– FY19***.
Rising incomes are expected to enhance the need for banking services in rural areas & therefore drive growth of the sector. Programmes like
MNREGA have helped in increasing rural income, which was further aided by the recent Jan Dhan Yojana.
Note: * 2nd revised estimates, ** 1st advance estimates, *** 2nd Advance Estimate
Source: McKinsey estimates, Ministry of Agriculture, Aranca Research
151.99
151.21
The recent improvement in property value have reduced the ratio of 140
loan to collateral value.
133.10
120
Credit to housing sector increased at a CAGR of 12.14 per cent
114.10
during FY09–18, wherein, value of credit to housing sector increased
from to US$ 114.1 billion in FY16 to US$ 151.2 billion in FY18 and 100
102.90
stood at Rs 10,966 billion (US$ 151.99 billion) in FY19*.
89.70
80
84.10
Demand in the low & mid-income segments exceeds supply
76.40
74.80
3 to 4 fold.
66.90
60
This has propelled demand for housing loan in the last few years.
53.90
40
20
FY19*
FY09
FY14
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
Notes: FY13: Data as on 22 March 2013, FY14: Data as on 21 March 2014, FY15: Data as on 20 March 2015, FY16: Data as on 18 March 2016, * - as of December 2018
Source: Reserve Bank of India (RBI)
Credit under the personal finance segment (excluding housing) rose 160
at a CAGR of 9.89 per cent during FY09–18, and stood at US$ 144.9
billion in FY18 and stood at Rs 10,031 billion (US$ 139.03 billion) in 140
144.90
FY19*.
139.03
Unlike some other emerging markets, credit-induced consumption is 120
still less in India.
111.60
100
98.60
88.10
80
82.30
81.20
74.90
73.30
60
63.30
54.70
40
20
FY19*
FY09
FY14
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
Note: FY13: Data as on 21 March 2013, FY14: Data as on 21 March 2014, FY15: Data as on 20 March 2015, FY16: Data as on 18 March 2016, FY18 Data as on 30 March 2018, * - as of
December 22, 2018
Source: Reserve Bank of India (RBI)
Pradhan Mantri Suraksha Pradhan Mantri Jeevan Jyoti Pradhan Mantri Jan Dhan
Atal Pension Yojana
Bima Yojana Bima Yojana Yojana
This scheme is mainly for This scheme aims to Under the scheme, 316.7 million accounts were
accidental death insurance provide life insurance cover. subscribers would receive opened.*
cover for up to Rs. 2 lakh the fixed pension of up to
Premium: Rs. 330 (US$ Under the scheme, each &
(US$ 2,983.29). Rs 5,000 (US$ 74.58) at the
4.92) per annum. It will be every citizen will be enrolled
age of 60 years (depending
auto-debited in one
Premium: Rs. 12 (US$ 0.18) on their contributions). in a bank for opening a Zero
instalment.
per annum. balance account.
The Central Government
Risk Coverage: Rs. 2 lakh
Risk Coverage: For will also co-contribute 50 Each person getting into this
(US$ 2,983.29) in case of
accidental death and full per cent of the subscriber's scheme will get an Rs.
death for any reason.
disability - Rs. 2 lakh (US$ contribution or Rs 1,000 30,000 (US$ 447.49) life
Gross enrolment under the (US$ 14.92) per annum,
2,983.29) and for partial cover with opening of the
scheme reached 53.3 whichever is lower, to each
disability – Rs. 1 lakh (US$ account.
million.^ eligible subscriber account,
1,491.65).
for a period of 5 years. Overdraft limit under such
Gross enrolment under the Capital Infusion Scheme 8.6 million enrolments# have accounts is Rs 5,000 (US$
scheme reached 134.8 been made under this 74.58).
million.^ Approved extension of Rs scheme since its launch and
343 crore (US$ 51.16 the PFRDA is targeting 10
million) to be infused for million accounts by March
2018.
three years till FY20 in
regional rural banks (RRBs) In May 2018, the total
which will strengthen their number of subscribers were
lending capacity. 11 million.
Note: PFRDA – Pension Fund Regulatory and Development Authority of India, ^ - as of April 4, 2018, * - as of May 23 2018, # - as of February 2018.
Source: News Articles, Pradhanmantri Jan Dhan Yojna, PMO, Aranca Research
The consolidated M&A activities are driven by NBFC and banking Visakhapatnam
Dealport
Value
traffic
in 2017*
(million tonnes)
sector.
Note: * - 2018 update expected by April 2019 from the EY Transaction Annual Report highlights
Source: News Articles, EY Transaction Annual Report highlights of 2017 and Outlook 2018, Microfinancies Institution Network
KEY INDUSTRY
ORGANISATIONS
INDUSTRY ORGANISATIONS
USEFUL
INFORMATION
GLOSSARY
US$ : US Dollar
Wherever applicable, numbers have been rounded off to the nearest whole number
Year INR INR Equivalent of one US$ Year INR Equivalent of one US$
2004–05 44.95 2005 44.11
2005–06 44.28
2006 45.33
2006–07 45.29
2007 41.29
2007–08 40.24
2008–09 45.91 2008 43.42
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