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3 Net interest Margin 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. Avg. net interest margin (in % per annum Dec 2013)
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1
P Jayendra Nayak
INNOVATE TO WINThe Indian Experience
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Estimates of Market Share based on linear projection
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
2000 2013 20250%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
7.50% 6.10% 4.70%
80.20%73.00%
63.20%
12.30%20.90%
32.10%
Foreign Banks Public Sector Banks Private Sector Banks
17%
CAGR CAGR
25%
15%
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Net interest Margin
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.
Avg. net interest margin (in % per annum Dec 2013)
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Fee Income to total income in %
The ratio of Fee income to total income has been highest for Private sector banks
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Net Profit per employee
Highest manpower productivity in private sector banksNet profit per employee about four times that of other bank categories
2.50
1.50
1.00
0.50
0.00
2.00
Net profit per employee (INR mn)
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Return on Assets
The gap in RoA between the new private sector banks and other bank categories has steadilywidened in recent years
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Price to book ratio Public sector banks vs Private sector banks
The investors have rewarded the Private sector banks with about three times the valuations
2008 2009 2010 2011 2012 20130
0.5
1
1.5
2
2.5
3
3.5
Public Sector Banks Private Sector Banks
Price-to-book ratioPublic Sector Banks vs. Private Sector Banks
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Why did this happen?Four key drivers of success of new private sector banks
Technology for Operational Efficiency
Relationship Management
Channels
Automated Transactions
Channels
Sales & Distribution
Channels
Key drivers of success of new
private sector banks
Innovation needs to be identified within these
key drivers
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Outsourcing from the branchCentralized customer data & transactions processes
Banking activities
• Demand Draft / Pay Order issues• Account opening• Inward clearing queries• Cash reconciliation• Payment of branch bills• Outward clearing data entry and
verification• Internal transfers processing• Printing bulk Demand Drafts and Pay
Orders• System related activities, e.g.
commissions and charges• Tax Deduction at Source (TDS)
certificates• Select Inter Branch Reconciliation (IBR)
transactions• Processing select customer requests, e.g.
ATM cards, PIN mailers
Degree of centralization
% of centralized activities
Typical public sector bank
Typical new private sector bank
0% 100%50%0% 100%
Pe r ce nt a ges o f wo r k p roc e sse s
80%
60%
100% 100%
60%
20%
10%
10% 10%
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Private sector banks centralize customer transaction dataRapid growth in ATM and POS network
749,309
338,276
44,535Point of Sale Terminal
Private Sector Public Sector Foreign Banks
51,490
128,811
10,889Distribution of ATM networks
Private Sector Public Sector Foreign Banks
14,638
83,888
325Distribution of bank branches
Private Sector Public Sector Foreign Banks
Private sector banks have just 15% of the branch network, but 29% of ATMsThey also account for 66% of the POS terminals.
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Relationship managers for the Mass Affluent and Sales Force for Mass Customers
> 1,000,000
Annual household Income (INR p.a.)
500,000 – 1,000,000 200,000 – 500,000
90,000 – 200,000
< 90,000
“MassAffluent”
“Affluent”
“Mass”
Industry Typical Pvt Sector Bank0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
64%
37%
26%
26%
7%
27%
2%7%
1%3%
New Private Sector Banks have made strong inroads into the mass affluent segment
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Insurance Premium
FY13 FY14 FY150%
20%
40%
60%
80%
100%
4841 36
5259 64
Insurance premium %
Public Sector Banks Private Sector Banks
FY13 FY14 FY150
400
800
1,200
1,600
588 516 527
642 736930
Insurance premium volume (INR bn)
Public Sector Banks Private Sector Banks
Share of insurance premium of public sector banks has been steadily decreasing.
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Mutual Fund earnings
Private sector banks’ share is about 65% of the total mutual fund earnings
12,8361,168
5,800
Gross mutual fund earnings (INR mn 2014-15)
Private Sector Public Sector Foreign Banks
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Cash management
Private sector banks have seen an explosive growth in the provision of cash management services
2002 2008 20140%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
4,00011,000
19,000
4,000
22,000 49,000
5,000 10,000 20,000
Cash Management throughput (INR bn)
Foreign banks Pvt Sector Banks PSU Banks
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Credit Cards
2002 2008 20150
5
10
15
20
25
30
1.5
84.80.8
12.5
12.1
1.2
4
4.3
Number of Credit Cards outstanding (Mn)
Foreign Private Sector Public sector
63,578
100,577
26,834
Credit card spends (Rs in Mn)
Foreign Private sector banks Public sector banks
More than half of the total credit card spends are generated by the private sector banks
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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
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THANK YOU
