High gross domestic savings. India s HNWI population to double by Phenomenal growth in NBFC finance. Robust AUM growth

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3 High gross domestic savings India s gross domestic savings (GDS) as a per cent of GDP has remained above 30 per cent since 2004 and stood at 30.8 per cent in FY12. RBI estimates domestic savings to reach 39 per cent of the GDP at the end of 12 th Five Year Plan(FY13 FY17) India s HNWI population to double by 2020 HNWI population in India is expected to double and total holdings by HNWI is estimated to reach USD3 trillion in 2020 which presents considerable growth opportunities for wealth management Phenomenal growth in NBFC finance NBFCs managed credit grew at a CAGR of 35 per cent over FY07 FY12. Retail credit registered 36 per cent growth in FY12 Robust AUM growth Mutual fund industry AUM recorded a CAGR of 16.8 per cent over FY07 FY13. India is considered one of the preferred investment destination globally Source: ICRA, Capgemini Wealth Report, 2011 Aranca Research Notes: HNWI High Net Worth Individual, NBFC Non-Banking Financial Company, AUM Assets under management

4 2012 National savings: USD606 billion Growing Growing demand demand Rising incomes are driving the demand for financial services across income brackets Financial inclusion drive from RBI has expanded the target market to semi-urban and rural areas Innovation India benefits from a large Crossutilisation of channels to expand reach of financial services Product innovation is leading to healthy growth in Insurance and NBFCs 2017F National savings: USD1,413 billion Growing penetration Credit, insurance and investment penetration is rising in rural areas HNWI participation is growing in the wealth management segment Lower mutual fund penetration of 11.3 per cent reflects latent growth opportunities Advantage India Policy support The engineering sector is delicensed; NRFIP 100 per aims cent FDI at providing is allowed in the comprehensive sector financial services to at least 50 per cent of financially excluded Due to policy rural support, households there by was end cumulative and the FDI remaining of USD14.0 by billion 2015 into Government the sector over has April set 2000 up Financial February Inclusion 2012, making Fund up to 8.6 support per cent financial of total inclusion FDI into the country in that period Government is all set to approve new banking licenses and increase the FDI limit in the insurance sector Source: World Bank, Aranca Research Notes: HNWI High Net Worth Individual, NBFC Non-Banking Financial Company, F Forecast, NRFIP National Rural Financial Inclusion Plan

5 FINANCIAL SERVICES Capital Markets Insurance NBFCs Asset Management Life Asset Finance Company Broking Non-life Investment Company Wealth management Loan Company Investment Banking Note: NBFC - Non Banking Financial Company

6 The asset management industry in India is among the fastest-growing in the world Mutual fund AUMs as of March 2013 (USD billion) Total AUM of the Mutual Fund industry clocked a CAGR of 16.8* per cent over FY07 13 to USD150 billion CAGR: 16.8%* Total AUM of the Mutual Fund industry grew to USD150 billion in FY13 from USD139 billion in FY As of FY13, 44 asset management companies were operating in the country 71 Securities and Exchange Board of India (SEBI) has announced various measures aimed at increasing the penetration and strengthening distribution network of mutual funds FY07 FY08 FY09 FY10 FY11 FY12 FY13 Total AUM Source: AMFI, Aranca Research Notes: AUM Assets Under Management, * In Indian Rupee terms

7 Corporate investors account for around 46 per cent of total AUM in India, while HNWIs and retail investors account for 28 per cent and 23 per cent, respectively The share of corporate investors declined to 46 per cent in FY13 from 51 per cent in FY09, while that of HNWIs increased to 28 per cent in FY13 from 19 per cent in FY09 Leading AMCs in India (as of March, 2013) Investor breakup (as of March 2013) Top 5 AMCs in India AUM (USD billion) HDFC Mutual Fund % Corporates Reliance Mutual Fund 17.4 ICICI Prudential Mutual Fund % Financial Institutions FIIs Birla Sun Life Mutual Fund 14.2 UTI Mutual Fund % 1% 2% HNWIs Retail Source: AMFI, Aranca Research HNWI - High Networth Individuals, AMC - Asser Management Company

8 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Steadily rising turnover in financial markets has led to rapid expansion of the brokerage segment The annual turnover value in NSE has witnessed a CAGR of 26.0* per cent between FY96 and FY13 to reach USD 499 billion The number of companies listed on the NSE rose from 135 in 1995 to 1,671 in April 2013 Listed companies on major stock exchanges in Asia-Pacific countries (as of December 2012) Turnover on NSE (Capital Markets Segment) in USD billion 2,056 1,547 1, , CAGR: 26.0%* Australian SE Hong Kong Exchange Korea Exchange Shanghai SE Taiwan SE Corp NSE India Source: National Stock Exchange, SEBI, Aranca Research Notes: CAGR Compounded Annual Growth Rate; NSE National Stock Exchange, * - In Indian Rupee terms

9 The number of listed companies on NSE and BSE increased to 6,877 from 6,445 over FY The number of registered sub-brokers rose to 77,165 in FY12 as against 62,471 in FY09. During FY13 (up to December 2012), total registered subbrokers stood at 70,516 Net investment (both equity and debt) by FII grew by 80 per cent** in FY13 and stood at USD 31 billion The brokerage market is getting more competitive with the entry of new players and increasing efforts of existing players to gain market share Companies listed on NSE and BSE Registered sub-brokers 6,268 6,361 6,445 6,641 6,779 6,877 62,471 75,378 83,952 77,165 70,516 6,049 5,850 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY09 FY10 FY11 FY12 FY13* Source: SEBI, Aranca Research Notes: FII Foreign Institutional Investors, NSE National Stock Exchange, BSE Bombay Stock Exchange, * As of December 2012, ** In Indian Rupee Terms

10 HNWIs the primary focus of the wealth management industry are estimated to have close to USD200 billion worth of liquid investable assets Total HNWI liquid assets (in USD billion) 192 The investable assets of HNWIs in India has expanded at a healthy 26.2 per cent CAGR over CAGR: 26.2% At present the size of wealth management industry in India is estimated to be USD20 40 billion, which represents per cent of total investable HNWI assets Advisory asset management and tax planning is the most demanded wealth management services among HNWIs, followed by financial planning Source: World Bank, Datamonitor, Aranca Research, Notes: HNWI High Net worth individuals

11 Organised segment of the wealth management industry is rapidly gaining ground, indicating that the sophisticated players are gaining client confidence Organised and unorganised segments 80% 60% 60% 40% 40% 20% FY07 FY10 FY14E Organised Un - Organised Source: Industry Reports, Aranca Research

12 The life insurance market has grown from USD10.5 billion in FY02 to USD59.9 billion in FY12 Over FY02 to FY12, life insurance premiums have increased at a CAGR of 19.1* per cent Life insurance penetration has grown to 3.4 per cent in 2012 from 2.2 per cent in 2001 Major private players in the Life insurance segment (as of FY12) Life insurance premiums (USD billion) Name Total Premiums (USD billion) ICICI Prudential 2.9 CAGR: 19.1%* SBI Life 2.7 HDFC Standard 2.1 Bajaj Allianz 1.6 Max Life FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Private Public Source: IRDA, Aranca Research * In Indian Rupee terms

13 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 The non-life insurance market has grown from USD2.6 billion in FY02 to USD12.7 billion in FY13 Non life insurance premiums (USD billion) Non-life insurance penetration has grown to 0.7 per cent in 2012 from 0.5 per cent in Over FY02 FY13, non-life insurance premiums have increased at a CAGR of 16.9* per cent Premiums generated by private players have risen at a CAGR of 45.8* per cent, while public premiums increased by 11.5* per cent over FY02 FY CAGR: 16.9%* Insurers witnessed a strong growth of 18.8* per cent in FY13, with private premiums rising at 23.7* per cent and public premiums at 15.4* per cent. Private Public Source: IRDA, Aranca Research * In Indian Rupee terms

14 Motor insurance accounted for 43 per cent of the gross direct premiums earned in FY13 (up from 41 per cent in FY06), at USD5.5 billion Segment-wise breakup for Non-life insurance premiums (FY13) At USD2.8 billion, the Health segment followed by seizing 22 per cent share in gross direct premiums, significantly higher than 10 per cent in FY06 10% 4% Motor Health Over FY06 FY13, CAGR in the health segment premiums was highest at 31.8* per cent, followed by Motor (19.2* per cent) and Marine (13.0* per cent) 21% 43% Others During the same period, the fire segment increased at a CAGR of 8.4* per cent, while other segments rose at 18.5* per cent 22% Fire Marine Major private players are ICICI Lombard, Bajaj Allianz, Shriram Transport, Reliance Life, Royal Sundaram, IFFCO Tokio and other regional insurers Source: IRDA, Aranca Research CAGR Compound Annual Growth Rate * In Indian Rupee terms

15 NBFCs are rapidly gaining prominence as intermediaries in the retail finance space Growth in AUM of retail NBFCs (in USD billion) NBFCs finance more than 80 per cent of equipment leasing and hire purchase activities in India In FY2012, 12,385 NBFCs were registered with India, with total assets at USD26 billion The AUM of NBFCs in retail finance tripled during AUM is estimated to grow by 17.0 per cent in FY Retail credit of NBFCs was estimated to grow by 32 per cent in FY12 New RBI guidelines on NBFCs with regard to capital requirements, provisioning norms and enhanced disclosure requirements are expected to benefit the sector in the long run E Source: CRISIL, Dun and Bradstreet, ICRA, Aranca Research Notes: AUM - Assets Under Management; NBFC - Non Banking Financial Company

16 In terms of market share in retail finance (except housing finance) space, NBFCs have been able to improve their market share from 26 per cent to 38 per cent over Share of NBFCs and banks in retail finance (exhousing), in % By 2013, the NBFC share of retail finance (except housing finance) is expected to rise to 47 per cent, almost at par with the market share of banks primarily due to strong presence in rural areas, product innovation and superior delivery of services E 2012E 2013E NBFC Banks Source: CRISIL, Aranca Research

17 As per RBI guidelines, NBFCs are classified as Asset finance companies (AFCs), Investment companies (ICs), Loan companies (LCs), Infrastructure finance companies (IFCs) and Systemically important core investment companies (CIC-ND-SIs) Growth in assets of gold loan NBFCs (in USD billion) 9 Vehicle finance is the major segment accounting for more than one-third of the gross assets of NBFCs, followed by loans against property and gold loans CAGR: 89%* 6 The share of NBFCs in total gold loans doubled from 13 per cent at-end April 2008 to 27 per cent as of FY12 Gold loan NBFCs expanded at a CAGR of 89* per cent over FY08 FY12. Total Assets of gold loan NBFCs were USD9.5 billion in FY12 compared to USD0.9 billion in FY FY08 FY09 FY10 FY11 FY12 Source: CRISIL, Reserve Bank of India, Aranca Research Notes: AUM - Assets Under Management; NBFC Non-Banking Financial Company * In Indian Rupee terms

18 Insurance sector New distribution channels like bancassurance, online distribution and NBFCs have widened the reach and reduced operational costs The life insurance sector has witnessed the launch of innovative products such as Unit Linked Insurance Plans (ULIPs) Most general insurance public companies are planning to expand beyond India markets, especially in South-East Asia and the Middle East Mutual Fund India s AUM has expanded at 16.8 per cent CAGR over FY07 FY13; total AUM stood at USD150 billion as of 31 March 2013 In FY09, SEBI removed the entry load to bring about more transparency in commissions, encouraging longer-term investment In its effort to encourage investments from smaller cities, SEBI allowed AMCs to hike expense ratio up to 0.3 per cent on the condition of generating more than 30 per cent inflow from these cities NBFCs NBFCs have served the unbanked customers by pioneering into retail asset-backed lending, lending against securities and microfinance NBFCs aspire to emerge as a one-stop shop for all financial services The sector has witnessed moderate consolidation activities in recent years, a trend expected to continue in the near future New banking licence-related guidelines issued by RBI in early 2013 place NBFCs ahead in competition for licenses owing largely to their rural network

19 Gross national savings in India stood at USD606 billion in 2012; this is expected to touch USD1,257 billion by end Gross national savings are expected to reach 39 per cent of the GDP at the end of 12 th Five Year Plan (FY13 17) from 30.8 per cent in FY2012 India s HNWIs wealth is expected to expand at a CAGR of 19.7 per cent and reach close to USD3 trillion by 2020 Gross national savings (USD billion) 1, , f 2014f 2015f 2016f 2017f 2018f Source: IMF, Reserve Bank of India, Deloitte Center for Financial Services, f - Forecasts

20 Over 90 per cent of household savings are invested in bank deposits and only 10 per cent in other financial asset classes. Innovative and customised products are expected to shift bank deposits to these asset classes With the introduction of new products such as ULIPs, the share of private insurers in life insurance investments has risen over past few years The quantum of savings that Indians are making is set to present immense opportunities for financial intermediaries to move savings to more productive channels Indian household Investments (2010) 10% Bank deposits & Government saving schemes Shares, Debenture & Mutual funds 90% Source: Opportunities & Challenges Indian Financial Markets (PWC) Report, Aranca Research

21 The Indian equity market is expanding in terms of listed companies and market cap, widening the playing field for brokerage firms Sophisticated products segment is growing rapidly, reflected in the steep rise in growth of derivatives trading With the increasing retail penetration there is immense potential to tap the untapped market. Growing financial awareness is expected to increase the fraction of population participating in this market Number of listed companies - NSE Growth in turnover for derivatives segment (USD billion) 1,574 1,646 1,666 6,418 6,539 5,806 1,470 1,381 1,432 3,253 3,726 1,069 1, ,089 1,625 2,398 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Source: National Stock Exchange, Aranca Research

22 The fraction of management services is growing, with a current estimated level of 20 per cent HNWIs who use wealth HNWI population The HNWI population in India is estimated to double by 2020 adding to the addressable market of wealth management Growing penetration Wealth management NRI/PIO segment With a fast rising economy, the investable wealth of HNWI segment is rising, creating a need for wealth services Rising incomes Remittances from Non-Resident Indians (NRIs) and People of Indian Origin (PIOs) at USD66.1 billion in FY12 adds to the size of the segment

23 Targeted at rural segment, potentially addressing two-thirds of Indian population Policy incentives are driving growth Auto / Engineering Passenger car sales are expected to grow by 3 5 per cent in FY14 Rising number of passenger cars, insurance for construction activity will rise with India s infrastructure growth plans. Microinsurance Insurance Agriculture Only 1 per cent population covered currently, suggesting that the vast market is yet to be tapped. Health insurance accounts for 1.2 per cent of total healthcare spend Health Demand for agricultural and livestock insurance growing on the back of rising awareness among rural population Source: The Society of Indian Automobile Manufacturers

24 Budgetary measures Various steps have been taken for deepening the reforms in the capital markets, including simplification of the IPO process, allowing QFIs to access the Indian bond markets The government has proposed simplification of procedures and prescribing uniform registration and other norms for the entry for foreign portfolio investors Removal of the cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate structure. Continuation to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15 per cent up to 31 March 2014 It has been proposed to allow stock exchanges to introduce a dedicated debt segment on the exchange Tax incentives Insurance products are covered under the EEE (exempt, exempt, exempt) method of taxation. This translates to an effective tax benefit of approximately 30 per cent on select investments (including life insurance premiums) every financial year Rajiv Gandhi Equity Savings scheme has been introduced in the Union Budget FY13, which allows for tax deduction of 50 per cent to new retail investors who invest up to INR50,000 directly in equities and whose annual income is below INR1.2 million Reduction in securities transaction tax from per cent to 0.1 per cent on cash delivery transactions and from per cent to 0.1 per cent on Equity futures Source: Dun and Bradstreet, Aranca Research Notes: QFI Qualified Foreign Investors

25 UTI Asset Management Company Ltd Established in 2003, appointed by UTI Trustee Co, Pvt Ltd for managing the schemes of UTI Mutual Fund Divisions Domestic mutual funds, Portfolio Management Services, Venture Capital and Private Equity Funds Features Domestic schemes: 90 AUMs: USD12.8 billion Network: 149 financial centres Recognition Star Fund House of the year Debt (ICRA: 2011) Awarded seven ICRA Mutual Fund Awards 2012 Net profit (USD million) FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY11 FY12 Source: Company website, Aranca Research

26 Motilal Oswal Financial Services Limited Established in 1987, Motilal Oswal Financial Services Limited provides various diversified financial services in India Divisions Broking and Distribution, Institutional Equities, Investment Banking, Asset Management, Wealth Management and Private Equity Features Number of registered customers: 773,716 Business Locations: 1,484 locations AUMs: USD557 million Recognition Best Equity Broker Award 2012 (Bloomberg UTV) Best Performing Financial Advisor (CNBC TV18 Financial Advisor Awards 2012) Net profit (USD million) FY 06 FY 07 FY 08 FY 09 FY 10 FY11 FY12 FY13 Source: Company website, Aranca Research

27 Muthoot Finance Limited Net profit (USD million) Muthoot Finance Limited is the largest gold financing company in India in terms of loan portfolio. The company provides personal and business loans secured by gold jewellery Divisions Financing, Power Generation and FM Radio Features Number of branches: 4,082 Gold loans under management: USD4.8 billion Number of employees: 24, FY 06 FY 07 FY 08 FY 09 FY 10 FY11 FY12 FY13 Source: Company website, Aranca Research

28 Kotak Mahindra Old Mutual Life Insurance Ltd Established in 2000, Kotak Mahindra Old Mutual Life Insurance Ltd offers life insurance products in India. It is a 74:26 joint venture between Kotak Mahindra Bank Ltd, its affiliates and Old Mutual Plc Plans Protection Plans, Savings and Investment Plans, Retirement Plans, and Child Plans Features Number of customers covered: 5,47,321 AUMs: USD2.0 billion Number of employees: 5,565 Number of branches: 389 Net profit (USD million) FY 07 FY 08 FY 09 FY 10 FY 11 FY12 FY13 (18) (24) Source: Company website, Aranca Research

29 Shriram Transport Finance Co Ltd Net profit (USD million) Shriram Transport Finance Co Ltd is India s largest player in commercial vehicle finance, with a niche presence in financing pre-owned and small truck owners Services Truck financing, passenger vehicle financing, farm equipment financing, construction vehicle and equipment financing Features Number of customers covered: 950,000 AUMs: USD9.1 billion Number of branches: FY 07 FY 08 FY 09 FY 10 FY 11 FY12 FY13 Source: Company website, Aranca Research

30 Two-thirds of India s population lives in rural areas where financial services have made few inroads so far. Rural India, however, has seen steady rise in incomes creating an increasingly significant market for financial services There are several stand-alone networks of SHG, NGO s, MFI s in different parts of rural India. Cross-utilisation of these channels can facilitate faster penetration of a wider suite of financial services in rural India Increasing use of technology to reach rural India is the paradigm-shifting enabler. Internet kiosk based channels are expected to become the bridge that connects rural India to financial services MFI Micro Finance Institutions; NGO Non Governmental Organisation; SHG Self Help Groups Credit Rural credit segment is a large market, which can be tapped by ensuring timely loans which are critical to agricultural sector Self Help Groups and NGOs are useful vehicles to make inroads into rural India Investments Safe investment options have a potential to tap into rural household savings Some private players are coming up with innovative products like third-party money market mutual funds to cater to rural investment needs Insurance Agricultural, livestock and weather insurance are potentially large markets in rural India Harnessing existing networks of MFIs, NGOs can speed up the process

31 India is one of the fastest growing wealth management markets in the world The HNWI population in India is young and therefore more receptive towards sophisticated financial products Demographic age-wise breakup of HNWIs (2010) 10% 15% 17% 39% 26% India has over 286,000 households with net worth of more than USD1 million with assets close to USD584 billion 73% 59% 35% 26% India APAC US Under Over 65 Source: Datamonitor, Aranca Research Investor protection The regulatory environment for fiduciary duties in wealth management is evolving; players will benefit greatly from quickly adopting new investor protection measures Brand building Brand building coupled with partnership based model will improve the advisory penetration. Greater focus on transparency will speed up the process Innovation Investment in required technologies, imbibing state-of-the-art best practices of advisory and creating customised and innovative products will enable growth

32 HNWI population in India is expected to expand rapidly over the next seven years Total wealth holdings by HNWI in India is estimated to be USD584.5 billion and is expected to reach USD3 trillion by 2020 High-net-worth households in India (estimates) Net worth USD1-5 million 157, , , , ,127 USD$5m-30 million 36,000 43,000 50,000 84,000 13,280 Above USD30 million 17,000 21,000 26,000 40,000 56,000 Total wealth holdings of millionaires (USD billion) , ,950.1 Source: Deloitte Center for Financial Services

33 Insurance Brokers Association Of India (IBAI) Maker Bhavan No 1, 4 th Floor, Sir V T Marg, Mumbai India Phone: ibai@ibai.org Association of Mutual Funds in India (AMFI) One Indiabulls Centre, Tower 2, Wing B, 701, 841 Senapati Bapat Marg, Elphinstone Road, Mumbai India Phone: / Fax: contact@amfiindia.com Finance Industry Development Council (FIDC) 222, Ashoka Shopping Centre, II Floor, L T Road, Near G T Hospital Mumbai India Phone: Fax: info@fidcindia.com

34 AUM: Assets Under Management BSE: Bombay Stock Exchange CAGR: Compound Annual Growth Rate FII s: Foreign Institutional investors GDP: Gross Domestic Product HCV: Heavy Commercial Vehicle HNWIs: High-net-worth Individuals IRDA: Insurance Regulatory and Development Authority LIC: Life Insurance Corporation NBFCs: Non Banking Financial Company NSE: National Stock Exchange RBI: Reserve Bank of India SEBI: Securities and Exchange Board of India USD: US Dollar

35 Exchange Rates (Fiscal Year) Exchange Rates (Calendar Year) Year INR equivalent of one USD Year INR equivalent of one USD Average for the year

36 India Brand Equity Foundation ( IBEF ) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Aranca and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.