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16TH – 30TH June 2014 . Vol 1 Issue 5 . For Private Circulation Only

pg 26. INTERVIEW: Dr Viraktamath

pg 31. Indian Economy – Trend indicators

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6. COVER STORY: Banking at the bottom of the pyramid

Ground Zero analyses how the banking opportunity at the bottom of the pyramid can be made commercially viable for organized financier

26. INTERVIEW: Dr. Viraktamath

Seed industry veteran talks about the macro opportunity in hybrid rice?

29. Indian Economy – Trend indicators

31. PhillipCapital Coverage Universe: Valuation Summary

LETTER FROM THE MANAGING DIRECTORThe Indian banking sector has undergone a signifi-cant transformation in terms of its size and compo-sition, but still a large segment of India’s population is excluded from the services of the organized financiers. Around 42% of our adult population doesn’t have savings bank accounts and 85% of urban adults do not have access to formal credit. Moreover, only a third of the registered 36.2mn MSMEs have access to formal credit and another 30mn micro enterprises are outside the organized financiers’ ambit.

Organized financiers have been focusing on large corporates, which have audited accounts and income tax returns. Similarly, the focus has been towards individuals with a regular cash flow stream. This has left out a large part of MSMEs and self-em-ployed people, as organized financiers perceived this segment as riskier, unscalable, and commercial-ly unviable.

Our cover story on bottom of the pyramid banking penned by our BFSI team led by Manish Agarwal-la explores the opportunity and presents various business models that can make inclusive banking commercially viable and scalable. Banks need to redesign their business strategies to incorporate BoP banking as a business opportunity and not a corporate social responsibility. To realize this opportunity, entirely new portfolio of products and services have to be created, delivered through radically different distribution structures, which are aligned to the needs and lifestyles of the financially excluded consumer.

Also read our candid interview with Dr. Viraktamath, a seed industry veteran who talks about the macro opportunity in hybrid rice. He believes the industry can jump two-fold in next five years. High-yield crops, like hybrid rice, are one of the important tools for combating food crisis.

Lastly, in our endeavor to provide a first-person-view of the happenings on the ground, we present the “Ground Zero Investor Conference” scheduled on 23rd and 24th of June. Please take a look at the blockbuster lineup and meet us there!

Best Wishes

Vineet

CONTENTS


MFI centre meeting at Jejuri


COVER STORY

The immense opportunity which the bottom of the pyramid (BoP) social group provides

to mainstream financiers is a well known fact. Still, little has been done to exploit the BoP

banking opportunity as it is perceived as economically unviable and unscalable. BoP

banking requires product innovation, unconventional delivery channels, and innovative

risk mitigation tools --- this has been demonstrated successfully by NBFCs / MFIs. The

competition and market dynamics in times to come will force mainstream financiers to re-

visit their BoP banking strategy. The recent crisis has underscored the need for reducing

banks reliance on wholesale deposit and credit and cultivating a retail portfolio of asset and

liability for financial stability. BoP banking is an economically viable business proposition --

banks only need to leverage technology and think out of the box.

pg. 8 BoP - Financially Excluded BoP-Ignoredbyorganisedfinancier___________________________________________pg.9 Opportunity & Challenges BoP Banking - Untapped opportunity but execution challenging___________________________________________pg.13 MYTH V/s Reality More of Myth than Reality___________________________________________pg.22 Big Bank and small saver Anewpathofprofitability___________________________________________

BY MANISH AGARWALLA, SACHIT MOTWANI & PARESH JAIN


The existing banking structure in India is elaborate and has

been serving the credit and banking services’ needs of the

economy. Since 1991, the Indian economy has undergone

significant transformation in terms of its size and composi-

tion. However, the composition has been skewed to industrials (the

banking sector’s exposure to industries is around 45% of total bank

credit while its contribution to GDP is just 26%), leaving huge un-

banked populations, segments, and geographies. According to the

2011 Census data, of the total of 246.7 million households in the

country, only 144.8 million households (58%) avail of banking services.

Also, only a third of the MSMEs (Micro, Small and Medium Enterpris-

es) have access to organized financing channels in India. There are

around 36.2 million registered and unregistered SMEs and another 30

million micro enterprises in the unorganized sector. The sector em-

ploys nearly 80.5mn people, producing total goods and services worth

Rs10.7tn, with fixed investment of Rs6.9tn. All together, the MSME

segment accounts for 45% of the country’s industrial output and 40%

of exports. The overall contribution of this segment to India’s GDP has

been at 8%. And yet, the MSME sector faces a chronic shortage of

bank financing to aid its growth and improvement agendas (just 12%

of total bank credit).

B O P - F I N A N C I A L L Y E X C L U D E D

BoP - Ignored by organised financier

S. No Country Number of Bank Branches

per 1000 KM

Number of ATMs per 1000 km

Number of Bank Branches

per 0.1 mn adults

Number of ATMs per 0.1 mn adults

Bank Deposits (% GDP)

Bank Credit (% GDP)

1 India 33.17 32.67 11.38 11.21 68.64 54.24

2 China 9.17 44.56 7.72 37.51 140.27 90.21

3 Brazil 8.24 20.68 47.26 118.6 45.97 42.42

4 Indonesia 9.24 35.15 9.59 36.47 39.13 32.85

5 Korea 80.36 NA 18.41 NA 77.82 86.43

6 Mexico 6.41 20.89 14.52 47.3 20.76 17.29

7 South Africa 3.04 17.5 10.42 59.93 43.92 73.38

8 UK 52.87 260.97 24.87 122.77 94.93 118.34

9 USA 9.6 35.26 59.19 46.62

10 France 38.07 38.83 106.68 109 34.85 40.41

11 Russia 2.83 13.49 38.22 182 33.86 41.23

Indicator of financial inclusion, 2012

India income pyramid 2011

>17

Lak

h

3.4-

17 L

akh

1.5

- 3.4

Lak

h

Rich

Middle Class

Aspirers

Deprived

<1.

5 La

khA

nnua

l Hous

ehold

Inco

me

Total ho

usehold

1%

13%

30%

56%

BA

NK

s

NB

FCs

MFIs

Source: NCAER

Source: IMF


Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost— The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan).

O P P O R T U N I T Y & C H A L L A N G E S

BoP Banking - Untapped opportunity but execution challenging

Financial inclusion is the process of ensuring

access to mainstream financial services (where and

when needed) to vulnerable social groups at an af-

fordable cost. It is the usage-intensity of a financial

product and service (instead of mere ownership

of a product), which results in sustainable financial

inclusion.

Why BoP banking will become necessary:

l Rising competition and declining spread

in normal banking business: Following the

mantra “Competition in market promotes eco-

nomic efficiency” the Reserve bank of India is

committed to freeing entry in banks. Accord-

ingly, RBI awarded two new banking licenses

and will continue to issue more licenses on tap.

Also, it is exploring the option of differentiated

licenses. The foremost impact on the industry

would be that of enhanced competition. The

next decade will see a dramatic change in

margins as the wholesale debt markets deepen

and corporate customers access the wholesale

markets directly.

l Regulatory compulsion: Banks are required to

lend 40% of adjusted net bank credit to the

priority sector, with certain sub-targets. The RBI

has also been tinkering with the qualification

of priority sector loan in order to ensure that

formal credit is available to the lower strata of

society. Most of the banks have missed their

priority sector targets or sub-targets, forcing

them to rethink their strategy of fulfilling priori-

ty-sector commitment.

The drive towards universal financial access,

including MSME finance, is no longer a policy

choice but a compulsion. With an objective of

ensuring uniform progress in banking services

in all parts of the country, banks were advised

to draw up a roadmap to provide banking

services through a banking outlet in every

unbanked village having a population of over

2,000 by March 2012. Banks successfully met

this target and covered 74,398 unbanked

villages. In the second phase, the roadmap has

been prepared for covering the remaining un-

banked villages (i.e., with population less than

2000) in a time-bound manner. About 490,000

unbanked villages have been identified and

allotted to various banks. The idea behind

allocating villages to banks was to ensure avail-

ability of at least one banking outlet in each

village.

Compulsive regulatory requirement and

rising competition / declining spread in mid

and upper segment of the pyramid will force

players to look at the untapped and profitable

segments at the bottom of the pyramid.

Compulsive regulatory requirement and rising competition / declining spread in mid and upper segment of the pyramid will force players to look at the untapped and profitable segments at the bottom of the pyramid.


l MSME: There are around 36.2 million registered and

unregistered enterprises SMEs and another 30 million micro

enterprises in the unorganized sector. The sector employs

nearly 80.5mn people, producing total goods and services

worth Rs 10.7tn with fixed investment of Rs 6.9tn.

Categories Domestic commercial banks / Foreign banks with 20 and above branches Foreign banks with less than 20 branches

Total priority sector 40% of Adjusted Net Bank Credit or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

32% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Total agriculture 18% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, which-ever is higher. Of this, indirect lending in excess of 4.5% will not be reckoned for computing achievement under 18%.

Nospecifictarget.Formspartoftotalpriority sector target.

Micro & Small Enterprises (MSE)

l 40% MSME advances should go to micro (manufacturing) enterprises hav-ing investment in plant and machinery up to Rs.10 lakh and micro (service) enterprises having investment in equipment up to Rs. 4 lakh;

l 20% of MSME advances should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs.10 lakh and up to Rs.25 lakh, and micro (service) enterprises with investment in equipment above Rs.4 lakh and up to Rs.10 lakh


Export Credit Not a separate category. Export credit to eligible activities under agriculture and MSE will be reckoned for priority sector lending.


Advances to Weaker Sections

10% of ANBC or credit equivalent of Off-Balance Sheet Exposure, whichever is higher.

Nospecifictargetinthetotalprioritysectortarget.

Priority sector requirement for SCBs

BoP banking: Opportunities galore

l Housing market: There is a dire shortage in housing for

units priced below Rs 1mn. This demand-supply mismatch

creates a huge potential market for Repco/Gruh Finance.

According to a JLL report, and based on a study by Monitor

Inclusive Market, the potential loan market for housing units

between Rs 300,000 and Rs 1mn is Rs 11trn (USD 220bn).

Residential housing - Demand V/s supply scenarioIndian MSMEs, armed with

an additional public procure-

ment policy demand, will

require huge funding for their

Greenfield and Brownfield

expansions. Public procure-

ment policy (PPP) introduced

by the government of India

in the finance bill of 2012 will

act as a driving force towards

socio-economic reforms by

creating a huge opportuni-

ty for the SME sector. The

policy makes it mandatory for

all public sector organizations

to source a minimum 20% of

Source: RBI

Sour

ce: J

LL


The strategy recommended by the Rangarajan

Committee, which would enable an inclusive financial

sector is as follows:

l Effecting improvements within the existing formal

credit delivery mechanism by leveraging on technol-

ogy based solutions, and evolving new models for

effective outreach.

l Provide access to comprehensive financial services

to at least 50% of the excluded rural cultivating and

non-cultivating households across different states by

2012 and the remaining households to be covered by

2015.

l For achieving the targets under financial inclusion,

leverage on the existing commercial bank branch

network in rural areas and provide access to credit to

at least 250 excluded rural household at each of their

existing semi-urban and rural branch networks.

l Compulsory requirement of opening branches in

un-banked villages. Banks are directed to allocate

at least 25% of the total number of branches to be

opened during the year in un-banked (Tier-5 and

Tier-6) rural centers.

l Open branches where population per rural and semi

urban branch office is much higher than the national

average.

l Innovate customized products taking into consider-

ation their varied needs as the current products and

services do not meet their needs.

l Incentivizing human resource for lending to low-in-

come group and providing inclusive financial servic-

es. Therefore, a proper system of incentives/disincen-

tives system needs to be put in place by the bank’s

management for special efforts/failures to achieve

desired levels of financial inclusion.

l Setting up of financial inclusion promotion and develop-

ment fund, which could initiate activities like Financing

Farmer’s Service Centers that will take the responsibility

of networking on technological front with agricultural

universities. Secondly, setting up institutions like farmer

training centers for promoting rural entrepreneurship.

Thirdly, set up a fund to provide support, education,

and credit linkage to Self Help Groups (SHG). Lastly,

providing additional training and developing skills and

shaping up their attitude towards the poor to help them

efficiently.

l Some of the procedural changes recommended are to

simplify mortgage requirements, exemption from stamp

duty for loans to small and marginal farmers.

l Making marginal farm holdings viable and enabling

their financial Inclusion by initiating government pro-

grams aiming at agricultural productivity, programs for

financing minor irrigation products.

l Regional Rural Banks (RRBs) to extend their services to

the unbanked areas and increase their credit-deposit

ratio and to set targets for microfinance and financial

inclusion, providing funding and technology support.

l To avoid mergers of RRBS at state level across sponsor

banks to ensure firm reinforcement of rural orientation

with a specific mandate on financial inclusion.

l To consider recapitalizing RRBs with negative net worth

as it would facilitate their growth, provide lenders a

level of comfort and enable to achieve standard capital

adequacy ratio.

l Relaxing and simplifying KYC norms to facilitate easy

opening of bank accounts, especially for small accounts

with balances not exceeding Rs. 50,000 and aggregate

credits in the accounts not exceeding Rs. 100,000 a

year.

their total respective procurement from MSMEs (including 4%

from SC/ST owned MSMEs) from April 2015 (FY16) onwards.

This opens up a vast prospect for the investor community in

terms of fixed asset investments and working capital invest-

ments. Moreover, RBI records show that Net Bank Credit

to about 12mn accounts in the MSE sector in March 2012

stood at approximately Rs 6tn. If one account is equated to

one unit and given that there are 36mn MSE units as per the

fourth census conducted by Ministry of MSME, it appears

that 26mn units are still deprived of bank credit. As per

ASSOCHAM estimates, the overall debt finance demand of

MSME sector is in excess of Rs32tn, and of this, only Rs 6tn

(19%) of debt is financed through the formal sector .


MSMEs struggle to access formal source of debt

l Microfinance: Assuming that the entire poor

population of India is a potential microfinance

client base, the market size for microfinance in

India is in the range of 58 to 77 million clients. This

translates to an annual credit demand of USD 5.7

to 19.1 billion (INR 230 to 773 billion) assuming

loan sizes between USD 100-250. If we assume

that the low-income, but economically active

population including small and marginal farmers,

landless agricultural laborers, and micro-entre-

preneurs, are also potential microfinance clients,

the annual credit demand goes further up to an

estimated 245.7 million individuals and USD51.4

billion (INR 2.1 trillion).

l Refinance market of pre-occupied vehi-

cles: The pre-owned vehicle financing market is

largely concentrated towards commercial vehicles.

The addressable target market in the commer-

cial vehicle segment is estimated at Rs 1,900bn

(source: STFL Annual Report) and 60%-65% of the

second-hand CV financing market is dominated

by the unorganized sector. The financing for other

vehicles such as cars and utility vehicles is largely

done by self or informal financing sources. The

outstanding stock of passenger vehicles (car, utility

vehicles, and MPVs) is estimated at 26-24mn units.

Source: Census

The resale in this segment is either funded by self

or informal sources. This segment provides a po-

tential for formal sources after considering custom-

er requirement and inherent risk involved.

Challenges

The formal financial sector continues to treat

providing financial services to the poor as a social

obligation rather than a viable untapped business

opportunity. Some typical challenges faced by the

financially-excluded consumer toward accessing

the mainstream financial services include complex

products, bureaucratic procedures, lack of credit

history, and lack of collateral. From the financer’s

perspective, the challenges for scaling up financial

inclusion include high cost of transactions, huge

upfront investments to create the infrastructure,

market development expenses, lack of standards,

lack of adequate collateral and erratic cashflow.


M Y T H V / S R E A L I T Y

More of Myth than Reality

Myths: One of the biggest myths about rural

banking is high operating costs — i.e. high cost

of reaching the remote areas and small account

holders given the low average ticket size. Moreo-

ver, many believe that potential volumes are low

in the rural business, which also hinders operating

leverage.

Furthermore, rural posting is considered a pun-

ishment by many of the bank’s staff instead of an

opportunity. Rural banking fulfillment is considered

more of a social agenda rather than looking at it

from an economical standpoint.

Another misconception amongst bankers is that

the rural economy is entirely dependent on agri-

culture, which is cyclical and subject to vagaries of

monsoon.

Bankers perceive that the asset quality in rural

banking is relatively weak and recovery is difficult

because of uncertainty over cash flows, incomes

related to vagaries of monsoon, and due to their

limited awareness and inexperience with banking.

Reality: Financial services at the bottom of the

pyramid can be a viable business proposition. It is

important to develop an in-depth understanding

of the consumer. To create a “demand pull” for

their products and services, banks will have to

redesign their products and services radically to

address the real (rather than perceived) needs of

the financially-excluded consumers.

The NBFCs and micro finances have demon-

strated a successful and scalable business model

by financing bottom-of-the-pyramid customers.

The key success factors have been: appropriate

products, simplified processes, cost effectiveness

and ease of accessibility, financial counseling and

mentoring, and incentive-based staff and mar-

ket development. The fact of the matter is that

these financiers are able to generate return ratios

superior to the many of the main stream banks. A

comparison of asset growth, spread, asset quality

and return ratio of banks vs. many of the NBFCs/

micro finance companies (which cater to the bot-

tom of the pyramid segment) suggests that BoP

banking can be a big success provided it is done

in an appropriate manner.

Particulars Banks NBFCs

Loan book growth (CAGR) 21.4 24.3

Average NIMs 2.8 5-10

Average RoA 1.0 2.1

Bank V/s NBFC

Historical return ratio

Source: PhillipCapital Research

Source: RBI


Repco Home Finance – Affordable housing; the next biggie….

Case study 1

Repco Business Model

Promoted by Repco Bank, Repco Home Finance is a hous-

ing finance company which has carved out a niche in the

huge mortgage industry by providing housing loans and

LAP to non-salaried customers who are left untouched

by banks and large HFCs. Repco mainly operates in the

Southern states catering to the peripheries of Tier 1

cities; Tier 2 and 3 cities. For housing loans, the company

sources customers by conducting loan camps once every

2 months.

In the LAP business, Repco largely caters to small

entrepreneurs requiring funds for expansion like

constructing an additional floor by an individual,

expansion of floor area by a restaurant owner etc.

Banks and large HFCs are usually wary of giving

loans to customers in this segment because of the

uncertain cash flows and also because these individ-

uals are unable to furnish audited financials or tax returns.

While both the segments are relatively riskier compared to

lending by large HFCs like HDFC and LICHF, Repco with

its sound risk management systems prices the product

aggressively yielding 12%+ on housing loans and 16% in

LAP. This enables it to earn a healthy risk adjusted NIM

and robust return ratios.

Sour

ce: C

ompa

ny, P

hilli

pCap

ital R

esea

rch


Direct marketing and customer contact

• Reaching out to customer through direct and localized

advertising, loan camps and word of mouth referrals

• Branch offices serve as a single point of contact for

customers

• Loan origination system with real time transmission and

review of loan applications

• Centralized credit appraisal team

• Greater transparency, reduced incidence of fraud, and

speedy operations

Low-cost operations

• Lean branch model with 3-4 employees per branch

with local knowledge

• Lower rentals in tier 2/3 and peripheries of tier 1

• Low administrative costs due to centralized credit

approval mechanism

• Direct business sourcing, no commission expenses

Robust risk management systems and processes

• Risk management systems at every step of loan pro-

cess: personal interview, property site and business

premises visit, valuation and legal opinion from inde-

pendent experts, linking interest rates to credit score,

etc.

• Same person involved in origination, appraisal, moni-

toring and recovery

• Conservative lending metrics: LTV 65% and IIR 50%

• Total loans written off since inception: 0.08% of total

cumulative disbursements

Risks to Repco Home Finance’s business model

The biggest risk for Repco’s business is a severe crash in

property prices making Repco vulnerable to higher Loss

Given Default (LGD) in the event of default. Direct contact

with customers, strong risk management processes and

lower LTVs ensures that these risks are partially mitigated.

Strengths of Repco’s business model


SKS Microfinance – Enterprising the expelled micro segment of India

Case study 2

It does not take much analysis to figure out that the market for financial services for the 50-60 million poor households of India, coupled with about the same number who are technically above the poverty line but are severely under-served by the financial sector, is a very large one— Vijay Mahajan, Managing Director, BASIX

SKS Microfinance is the only listed microfinance entity in

India with a core business of lending for income genera-

tion and productive activities with loan amount ranging

from Rs 4,000 to Rs 14,000. The borrowers’ activities

range from raising cattle to running tea stalls or kirana

(provision) stores.

SKS lends solely to women borrowers under the joint-lia-

bility group-lending model (similar to the Grameen Bank

model) wherein women guarantee each other’s loans.

There are three reasons why SKS lends only to women.

Women tend to use resources more productively than

men, they are more likely to invest most of their income

back into the household, and they are more likely to

avoid risky ventures and instead use loans to undertake

small, manageable activities.

SKS’s approach is to provide financial services at the

doorstep of members in villages and urban colonies. This

allows the poor convenience and savings in terms of cost

and time associated with travelling to mainstream banks

and enables SKS staff to promptly and fully collect repay-

ments. Its loans are designed for convenience with small

weekly repayments corresponding to cash flows. Small first

loans inculcate credit discipline and collective responsibil-

ity.

SKS utilizes a five-member Joint Liability Group (JLG)

lending methodology based on the Grameen Bank model,

wherein each member of the group

serves as the ultimate guarantor for

each of its members. Further, mul-

tiple groups (4 to 10) of members

in a single village are combined

together as a Sangam (Center).

The Sangam is responsible for the

repayment of all groups, creating

a dual joint liability system, where

the Sangam pays in case any of the

group defaults on payment. The

Centre meeting happens every

week, where the Sangam Manager

(Loan Officer) collects loan appli-

cation forms, disburses loans and

collects loan installment.

Micro credit for mobile phone disbursed at SKS centre


SKS Business Model

l Selection of villages: Before starting operations, its

staff conducts village surveys to evaluate local condi-

tions like population, poverty level, road accessibility,

political stability, and means of livelihood.

l Group Formation: Women form self-selected

five-member groups to serve as guarantors for each

other. Experience has shown that a five-member

group is small enough to effectively enforce group

peer pressure and, if necessary, large enough to cover

repayments in case a member needs assistance.

l Compulsory Group Training: CGT is a four-day

process consisting of hour-long sessions designed

to educate clients on SKS processes and procedures

and to also build a culture of credit discipline. Using

innovative visual and participatory teaching methods,

SKS staff introduces clients to its financial products

and delivery methods. CGT also teaches clients the

importance of collective responsibility, how to elect

group leaders, how to affix signatures, and a pledge

that serves as a verbal contract between SKS and

its members. During this training period, SKS staff

Group Center

Branches

MFI

The way MFI’s operate in India

l Five members groups are the basic units

l 5-8 such groups constitute a branch (Centre)

l Centers meet once a week

l Disbursements and collections are made in centre

meetings

l Groups and Centers appraise the loans and under-

take joint liability

l All Centre meetings are attended by the staff of

MFI

l Flat rate of interest calculation

l Started by Grameen Bank of Bangladesh

l Highly standardized processes

l Many adopters all over the world

SKS operating structure

collects quantitative data on each client to ensure

qualification requirements are met, as well as to re-

cord base-line information for future analysis. On the

fourth day, clients take a “Group Recognition Test”

conducted by a different staff member than the one

who trained them. If they pass, they are officially

accepted as SKS members.

l Centre Meetings: During Centre Formation, groups

are combined to form a centre of 3 to 10 groups or

15 to 50 members. Weekly Centre meetings serve

as a time to conduct financial transactions. Meetings

are held early in the morning, so as to not interfere

with clients’ daily activities. A leader and deputy

leader are selected to facilitate meetings and ensure

compliance with SKS procedures. In addition to

financial transactions, members use the weekly

meetings to discuss new loan applications and com-

munity issues. Centre meetings are conducted with

rigid discipline in order to sustain the environment

of credit discipline created during CGT.

Source: Company, PhillipCapital Research


SKS’s JLG model versus the bank’s SHG Linkage model

Self Help Group Model

l Initiated in India in the 1980s

l Clients may be men or women

l A group of 10-20 individuals

l Is an independent entity

l Is usually promoted by Self Help Promoting Institutions

(SHPIs) or MFIs

l Have their own bank accounts and books of accounts

l SHGs collect savings and give loans to their members

l Can borrow on their own account

l SHGs can execute documents

l Are recognized by government

l Also take up social issues

l SHG has its root in social development

l Banks provide loans only after 6 months of group forma-

tion

Loans Savings

Loans Savings

Financial Institutions (e.g. Banks)

SHG

Loans Repayment

MFI

Joint liability of the Group

Loans Repayment

MFI


Loans Repayment

MFI


JLG Model

l A group comprising of 5 members

l 4-10 such groups constituting 20-50 members forming a

Centre

l Usually promoted by an MFI

l Mainly promoted for loans, not internal transactions

l No bank accounts

l No books of accounts are maintained by JLGs

l Have to depend on MFI for all their loan requirement

l Are not recognized by the government

l Cannot execute documents

l JLG has its roots in microfinance

l Loans provided immediately by the MFIs after group is

formed

Source: PhillipCapital Research Source: PhillipCapital Research


Shriram Transport Finance is a niche vehicle finance com-

pany with a significant presence in the used CV financing

segment. Despite so many players testing the used vehicle

finance market, STFC has maintained its market leadership

position. While in the new CV finance segment, there is

a strong presence of banks like HDFC Bank and Indusind

Bank, and large asset finance companies like Sundaram

Finance, STFC has carved out a niche in the used CV

financing segment.

The key reason behind the success of its model is the

knowhow and strong customer relationship facilitating

robust track record of collection even though the customer

segment is perceived risky by many of its peers. The typi-

cal borrower is a first time owner of a truck (mainly a driver

turned owner) who, with limited capital, finds it difficult to

purchase a new vehicle.

STFC’s field officers have a strong local knowledge and

they largely source the customers through referrals. The

field officer facilitates the entire process from disbursal to

collections and visits the customer frequently. This helps

them keep asset quality in check despite lending against a

mobile asset.

Shriram Transport Finance (STFC)

Case study 3

Market Share

Performance

Target Segment Small truck owners (less than 2-3 trucks) with underdeveloped banking habits

Existing customer base upgrading to new trucks

Small truck owners (less than 2-3 trucks) with underdeveloped banking habits

5-6%

AUM of approximately Rs. 465.54 bn at the end of FY14

AUM of approximately Rs. 62.50 bn at the end of FY14

CV Financing Business Model

Pre Owned (5-12 Years & 2-5 Years Old CVs)

Lending yields 18-24% (5-12 years)Lending yields 15-16% (2-5 years)

Lending yields 14-16%

New

Source: Company


Knowledge driven valuation model

Vehicle Assessment

60%-70% Loan-to-ValueRatio – Old CVs

75%-85% Loan to ValueRatio – New CVs

In-house Administered Loan Recovery

Knowledge & Relationship based Recovery Procedure

Field Officers Vast Customer Base

Core strength of Shriram Transport’s model

Robust recovery/collection processes

l Due to underdeveloped banking habits of small truck

operators, a large part of monthly collections is in the

form of cash

l Compulsory monthly visits to borrowers by field of-

ficers help in managing large cash collections

l Continuous monitoring of disbursed loans

Prudent credit norms

l Substituted formal credit evaluation tools, such as IT

returns and bank statements, with personal under-

standing of the customers’ proposed business model

l Client and truck-wise exposure limits

Stable asset quality even in downturn

l Asset backed lending with adequate cover

l Target segment generally operates on state highways

and short distances, ferrying essential commodities

Incentive schemes for field officer to facilitate collec-

tions

l Well-defined incentive plan for field officers to ensure

low default rates

l Field officers are responsible for recovery of loans they

originate

Risks in Shriram Transport business model

l Lackluster economic environment can result in higher

delinquencies

l Shriram Transport is vulnerable to mining ban in cer-

tain regions

Source: Company


Supplier’s bargaining power – Medium

l Funds at competitive costs leads to strong margins

l Dependence on banks and financial institutions

l ECB route not permitted

Customer’s bargaining power – Low

l Unique customer base, traditionally perceived ‘risky’ by the banks and organised financiers

l Unorganised financiers charge higher rates

l Lack of banking habits and higher mobility make the segment highly challenging to serve

Threat of entrants – Low

l Unique business model backed by established relationships

l Three decades of industry presence

l Caters to a unique customer base comprising of SRTOs and FTUs.

l Established product valuation expertise

Threat of substitutes – Low

l Inability of FTUs to finance entire asset from their savings

l Valuation of pre-owned asset a major barrier for financing companies

Competition – Lowl First mover and leader in

preowned CV financingl Has created scalable modell Has emerged as a banker to

the pre-owned asset ownersl Highly unorganised industry,

mainly run by private financi-ers

Porter’s five force model for STFC

Source: Company


A new path of profitability

B I G B A N K A N D S M A L L S A V E R

Banking services to the bottom of the pyramid

segment can be a successful and scalable business

proposition provided it is done in an unconven-

tional way. Many banks are still pursuing bottom of

the pyramid banking as a regulatory requirement

rather than treating it as a business model. Banks

have to realize that the bankability of the BoP

segment is a major opportunity for developing a

stable retail deposit base and in curbing volatility

in earnings with the help of a diversified asset

portfolio. The recent crisis has underscored the

need for reducing banks’ reliance on wholesale

deposits and credit and cultivating a retail portfo-

lio of assets and liabilities for financial stability. Two

basic issues that need to be understood:

• Bottom of the Pyramid banking should be

implemented on commercial lines and not on

a charity basis. It is important that banking with

the poor is perceived and pursued as a sustain-

able and viable business model.

• While the poor need not be subsidized, it is

important to ensure that they are not exploit-

ed. The need is to ensure that poor people

who deserve credit are provided access to

timely and adequate credit in a non-exploita-

tive manner.

To realize this opportunity, entirely new portfolio of

products and services has to be created, delivered

through radically different distribution structures,

which are aligned to the needs and lifestyles of

the financially excluded consumer. There are many

supply side (financers) and demand side (custom-

ers) factors impeding the inclusive growth. Ad-

dressing demand side factors is as much important

as addressing the supply side factors.

Key issues needed to be addressed, which will

allay the concerns faced by supply side as well as

demand side, are:

l Appropriate product:

a. Product that caters to their (poor classes) re-

quirements; generally small in denomination

b. Flexible repayment schedule as cash flows are

erratic and largely cyclical

c. Collateral-less lending for small loans below

a certain threshold (physical collateral can be

replaced by a guarantor who has a well-estab-

lished credit history)

d. Affordable insurance product (life as well non-

life)

l Simplified process:

a. Simple and less document-intensive processes

b. Biometric-based identity validation or Letter of

introduction form local citizens with good his-

tory with the bank can be used to authenticate

the beneficiary

l Rapid and cost effective outreach

a. Deploying a well-established network of

trained business correspondents is perhaps

the most cost-effective way of addressing the

accessibility challenge.

a. Self-help group (SHG) and Joint-liability

groups (JLG). The SHG-Bank linkage program

launched in the 1980s in India has been a big

success and it is estimated that by 2007 nearly

3 million SHGs representing nearly 40 million

households were linked with banks in India.

However the empirical evidence suggest lower

delinquencies under Joint liability group (JLC)

vs. SHG


Why is JLG model successful than bank’s SHG model?

Even though the SHG linkage programme has made

impressive progress in the last two decades, the last few

years have seen stagnation in their credit growth. The

main reasons were that A) in SHG, group formation is per-

ceived as a means to avail of government subsidies and

entitlements, which also led to an increase in the number

of multiple memberships in SHGs, and B) the financing

banks were ill-prepared for the sudden spurt in SHG loans

and their monitoring and supervision of such loans be-

came less regular (and even totally absent at times!)

Fresh loans to SHGs have been near stagnant for last few

years; though it showed a marginal rise during 2012-13. A

region-wise analysis, however, shows a disturbing feature

with Southern and Central regions showing an increase

of nearly 20% and 10% in the number of SHGs extended

fresh loans; Northern region too shows a marginal increase

of 1.74%, while all other regions point to negative growth.

Backward states like Bihar, Chhattisgarh and Jharkhand

reported a decline of over 20% while North Eastern States

recorded as high as over 50% decline.

Mounting NPAs in SHG lending

From an envious record of almost 100% recovery of loans

by SHGs, the NPAs of SHG loans by banks have reached

an alarming high of over 7% of the loans outstanding

against them. More painful is the fact that loans to SHGs

in the most resource poor regions in the country reported

NPAs of over 10%. GNPAs in SHG stood at 7.08% in 2012-

13 vs. 2.9% in 2009-10. This explains why banks have been

wary of lending in the SHG segment. The southern region

with a NPA of 5.11% was the lowest, while the central

region with an alarming 17.3% was the highest. A cause

of grave concern is the high NPAs in major states like

Madhya Pradesh (21.16%), Uttar Pradesh (18.22%), Odisha

(18.27%), Tamil Nadu (10.81%) and Kerala (12.38%)

Alarmed by the steady increase in the NPAs of loans to

SHGs, NABARD undertook studies in two important states

- Uttar Pradesh (where the NPA of SHG loans is nearly

18%) and Odisha to understand the underlying reasons for

the spurt in NPAs of loans to SHGs

JLG model successful than the bank’s SHG model

The studies highlighted the following reason for high NPAs

in SHG:

l Focus on group formation for availing subsidy from the

government, not self-help or group dynamics.

l Some groups were not functioning at all - no regular

meetings, no records of transactions, not trained / ex-

posed to SHG functioning, no regular internal savings

or lending, and members were not even aware of the

default of loans.

Self Help Promoting Institutions (SHPI’s) do not provide

the escort services necessary to nurture the SHGs; rather

they are more target oriented and confined to linking the

groups with banks for disbursement of loan and subsidy.

Banks have largely left the issue of monitoring / supervis-

ing the group functioning to the SHPIs, and there were no

regular post disbursement follow-ups.

Widespread prevalence of middlemen / agents for SHG-

Bank linkage - even for depositing the savings amount; this

was leading to pilferages.

No proper credit appraisal or rating of SHGs was done

before extending loans.

No proper training was given to the bank staff or to SHPIs/

SHG members before the groups were linked to banks.

Willful default and external environment was not condu-

cive to regular loan repayment.

SHG lending concentration

South70%

East14%

Central 7%

West4%

North3% North East

2%

Sour

ce: N

ABAR

D


Mobile banking is one of the key pillars (with ATMs and In-

ternet Banking) of revolutionary improvement in the quali-

ty of service delivery of banks. Mobile banking is deemed

to be simply performing banking transactions such as bal-

ance checks, account transactions, and payments with the

help of a mobile phone. The scope of services offered in

mobile banking may include getting account information,

transferring funds, sending checkbook requests, managing

deposits, quick check of transactions and so on. Mobile

banking today is most often performed by SMS (Short

Message Service), known as SMS banking.

Mobile Banking Services in Africa

With the advent of Mobile banking and mobile money ser-

vices, the face of personal and business banking in Africa

has revolutionized. The mobile money services made its

foray in the African economy with the launch of M-PESA in

Kenya and Tanzania in early 2007. The leading mobile op-

erator in Kenya, Safaricom (part of the Vodafone Group),

launched one of the most successful implementations of

a mobile money transfer service, M-PESA. The service

has grown rapidly since launch, and is currently used by

over 8 million subscribers. With mobile money in play, the

need to carry a bank card or cheque book or visiting the

local bank branch to transfer or withdraw money has been

eliminated.

Mobile phone technology has changed retail banking

landscape in all income brackets, but predominantly its

biggest impact has been on the lowest income segments.

Indeed, for many people living in poverty, and deprived

of banking facilities through the formal channels, mobile

phone technology has provided access to basic financial

services, such as cashless money transfers, without having

to hold a bank account at all.

Key Factors contributing to Mobile banking services

The key factors driving the successful implementation of

M-PESA include increasing mobile phone penetration,

limited access to finance (around 38% of people without

Mobile Banking - Revolution in Africa and untapped potential in India

Case study 4

access to any financial services), higher literacy levels,

education among users about the service and benefits of

mobile banking, the rising demand for alternate money

transfer services, lower competitive environment along

with conducive regulatory environment.

Mobile Banking in the Indian Banking Arena

In the Indian context, mobile banking is enjoying a rapid

growth in India. It has successfully crossed the introduc-

tion stage. The service is being channelized from met-

ropolitan cities to urban areas and semi urban areas and

then to the rural areas. The growth of mobile banking in

India is primarily driven by convenience and promptness.

Indian banking industry has already witnessed two more

revolutions in the improvement in the quality of services

delivery as Internet banking and ATMs. Huge growth in

mobile phones, affordability of handsets coupled with

well-designed rates and tariffs by telecommunication

companies has made mobile phone available for every-

body and has indeed become the lifeblood for mobile


l Financial counseling:

a. Counseling and mentoring to the poor as part of basic

banking services.

b. The financial institutions should collaborate to establish

counseling centers around rural inhabitation clusters

and ensure that they are operational when the poor can

access them, e.g., in the evenings.

l Leveraging technology:

a. Many low-income people lack access to financial services

because of the high transaction costs and complex logis-

tics involved in reaching them. Technology companies are

beginning to address these challenges through electronic

transaction platforms, creating opportunities to serve

low-income customers and bringing benefits spanning

convenience, efficiency, security, market access, and inte-

gration into the formal financial system.

b. Enable product innovation: Many of the innovative prod-

ucts being created for the financially excluded consumer

would not have been possible without the usage of tech-

nologies like mobile, wireless connectivity, biometrics,

etc.

c. Improve service efficiency: Their high financial illiteracy

and inability to travel away from work makes the financial-

ly excluded value simplified procedures and quick-turna-

round time.

d. Increase outreach: Central, East and North-East India

have some of the largest concentrations of the financially

excluded population in India due to lack of infrastructure

(including roads and power) and dense forestation. The

populations of these regions often have to travel large

distances over inhospitable terrain to access a financial

institution. The continuing slow pace of infrastructure

development coupled with the long gestation period of

the ‘brick and mortar’ banking model will obstruct any

meaningful impact in these regions. The proliferation of

mobile services in these sub-par infrastructure regions

can result in an increased outreach of financial services at

a faster pace through technology-enabled service deliv-

ery. Many of the financial services discussed above can

be provisioned on the current technology and available

connectivity infrastructure in these regions thereby fulfill-

ing a significant proportion of the financial needs of the

poor.

Conclusion:

Research into the products, practices, and procedures of

the unorganized sector (that currently caters to the bottom

of the pyramid population) is an absolute imperative to

understand the needs of the BoP better. This could throw up

valuable leads for the organized sector (banks and financial

institutions). Research agencies should conduct a census of

moneylenders in rural India to measure their intensity.

To sum up, banks need to redesign their business strategies

to incorporate specific plans to promote financial inclusion

of the low-income group treating it as a business opportu-

nity and not a corporate social responsibility. They have to

make use of all available resources including technology and

expertise available with them as well as the MFIs and NGOs.

It may appear in the first instance that taking banking to the

sections constituting “the bottom of the pyramid”, may not

be profitable but the fact is — relatively low margins on high

volumes can be a very profitable proposition. Financial inclu-

sion can emerge as commercially profitable business. Only

the banks should be prepared to think outside the box!

banking in India.

Key factors providing the platform for Mobile Banking

in India

The success and effectiveness of mobile banking mainly

hinges on the banking system in the country and their

connection with regulatory and supporting system. There

are many factors that support mobile banking in India.

l First, banks are taking the initiative and encouraging

people to register and use mobile banking services.

l Customers are also adopting the services because

they get many benefits.

l Speedy growth in mobile customers and strong IT

services are also big supports behind the success of

mobile banking in India.

Key challenges in the Indian context

The biggest challenge for mobile banking services is edu-

cating mobile users (especially in rural areas) and security

of transactions. All mandatory alerts should be sent to the

customers in time and the complete system should be dis-

ciplined and robust. No information should leak out. Users

should have an easy option to revert wrong transactions

quickly. Mobile banking education should become a part

of banks’ promotional campaigns.


Dr. Viraktamath,Seed industry veteran talks about the macro opportunity in hybrid rice

Here are some excerpts…

How big is the hybrid rice market and how large

can it become?

Rice is the largest sown cereal crop (42mha or

around a third of the total cereal crop sown area)

and India’s production was around 106mmt in FY14.

While we are the second largest producer of rice,

the yields are half the global average. And that is

because almost 95% of our rice areas grows tradi-

tional high-yielding varieties (i.e., use of saved or

Dr. Viraktamath is India’s one of the most respected senior hybrid rice researcher. He has worked as a consultant to the Food and Agriculture Organization of the UN and the International Rice Research Institute and has recently retired as project director from Directorate of Rice Research, Hyderabad. In an interaction with Ground Zero, he talks about his vision and commitment to develop suitable rice hybrids by modern innovative breeding techniques, current status of accept-ance to rice hybrids and future prospects. He is of the view that with a change in mindset and the government’s support, the value of the rice industry can jump two-fold over the next five years.

BY GAURI ANAND

varietal seeds), compared to about 50% in China,

the biggest rice grower, whose use of hybrid tech-

nology has boosted average yields to more than

six tonnes a hectare. Rice is a water-intensive crop

and only 55% of the acreage under cultivation is

irrigated, partly explaining the lower yields and

thus production. For instance, today the hybrid

seed market is dominated by Cotton seeds (40%

of the total seed industry size of US$ 2 bn) given

implementation of BT technology; however cotton

accounts for a meager 1% in volume terms. In


comparison rice accounts for 45% of the industry in

volume terms; however given lower penetration of

hybrid rice seed, the market is just about Rs 6.5 bn

(when included for rice varietal the size is about Rs

14 bn). Hybrid rice is planted in only 2.5mha (6% of

the total area under rice cultivation of 42mha) and

the government targets 10mha by 2025. With great-

er acceptance to hybrid rice seed the market can be

well over Rs 30bn, an impressive CAGR of 17% over

next decade. With change in mindset and the gov-

ernments support the market could jump two-fold in

next five years.

With just about 15~20% increase in yields over

inbreds, does the economics favor use of hy-

brids? How soon can rice hybrids get popular and

what are the impediments to its greater accept-

ance?

As a result of concerted efforts over the last two

decades, totally 70 hybrids have been released so

far (out of which 37 are from private companies).

However, acceptance towards hybrids was rather

slow during initial years because of poor grain qual-

ity and consequently lower market price. But with

the established yield advantage of hybrids (about

15~20% higher) over inbred varieties, rice hybrids

are fast gaining acceptance. Hybrid seed is the only

additional expenditure incurred (Rs 150~200/kg)

over the high-yielding varietal seed of Rs 40~50/kg;

but, given the yield advantage of at least 1.5-2.0 mt/

hectare, the profits are upwards of Rs 10,000~12,000

per hectare, making hybrids slowly a popular choice.

Rice hybrids are only popular in states such as UP,

Bihar, Jharkhand, and Chhattisgarh; large scale

adoption of hybrid rice is expected in these states

over the next decade. Hybrid rice is also picking

up in Haryana and Punjab in recent years. We also

need to develop hybrids specifically suited to high

productivity areas of Punjab and Haryana and for

the coastal region, which is still a grey area. Hybrids

have not made a dent in the southern region. It is

because people in the south prefer medium slender

grains like BPT 5204, Ponni mahsuri, etc., and most

hybrids are long-grained and sticky. In order to suit

the medium slender variety, the researchers have de-

veloped hybrids that are now at par with the popular

variety BPT 5204. With improved technology, the

new hybrids meet the specific grain quality/taste re-

quirement of Southern India and with government’s

push, we expect a greater acceptance ahead.

How critical is the choice of seed to overall pro-

ductivity?

Seed is a critical and basic input for enhancing

agricultural production and productivity in different

agro-climatic regions. Efficacy of other agricultural

inputs such as fertilizers, pesticides, and irrigation

is largely determined by the quality of seed. Seed

The work of Prof. Yuan Longping of Peoples

Republic of China (considered father of Hybrid

Rice), has resulted in the successful development

and commercialization of hybrid rice some thirty

years ago. In China 99% of area under paddy is

irrigated vs. 50% in India — thus average rice

yield in India is half of China (around 3.5 tonnes/

hectare). With rising yields, China feeds an extra

60mn people every year. Hybrid rice has also con-

tributed to improved food security in China. With

increase in yields, the demand for commercial

hybrid seeds have increased, thus driving costs

lower. The Chinese government has provided crit-

ical support to the hybrid rice program through

necessary funding and policies.

India, with 42mha under paddy cultivation is a key

player in Asia and has also identified higher vigor

hybrid rice technology to meet the future food

demand. Hybrid varieties yield 15-20% increase in

yield over the currently available improved varie-

ties of paddy. Rice grown in China is more of the

‘japonica’ type that becomes sticky upon cooking.

Such rice is not accepted in India and hence adap-

tation to suit local conditions, developing hybrids

with still higher yield advantage, and improving

the quality to meet the widely variable quality re-

quirements are some of the research imperatives.

Incorporating inbuilt resistance to major pests and

diseases, aggressive seed production and market-

ing are some of the immediate steps to be taken

to promote hybrid rice in India.


quality is estimated to account for 20-25% of pro-

ductivity. It is, therefore, important that quality seeds

are made available to the farmers.

Given that rice is a self-pollinated crop, we under-

stand it is difficult to crossbreed it. Please explain

the breeding in rice crops.

Hybrid rice is any genealogy of rice produced by

crossbreeding different kinds of rice. As with other

types of hybrids, hybrid rice typically displays hetero-

sis (or hybrid vigor) such that when it is grown under

the same conditions as comparable to high-yielding

inbred rice varieties it can produce up to 20% more

rice.

In crop breeding, although the use of heterosis in

first-generation seeds (or F1) is well known, its appli-

cation in rice was limited because of the self-pollina-

tion character of that crop. In 1974, Chinese scien-

tists successfully transferred the male sterility gene

from wild rice to create the cytoplasmic genetic

male-sterile (CMS) line and hybrid combination. The

first generation of hybrid rice varieties were three-

line hybrids while in recent years two-line hybrids

are becoming popular in China. Hybrid yields are

about 15 to 20% greater than those of improved or

high-yielding varieties of the same growth duration.

In India, too, we have adopted the same technology.

However, given the low level of irrigation, lower use

of fertilizers (just 100 kg/hectare vs. China’s usage

of 300 kg/hectare) and rich soil (China uses very rich

organic matter such as pig manure) our yields are far

from matching China’s productivity. Variable quality

requirements and lack of policy support are other

issues that have resulted in slower spread of hybrid

rice in India.

What are the further innovations the industry is

working on and who are the prominent incum-

bents in this industry?

The researchers are developing hybrids that suit

different agro climatic conditions (especially limited

water condition areas, saline/alkaline soil conditions,

moisture stress, different taste and lengths) for its

greater acceptance. Many promising parental lines

with better floral traits have been developed. Seed

production technology is further refined to improve

average yields by 2.5-3.0 mt/hectare on a large

scale, so that the cost of hybrid rice can be reduced

from Rs 150-200/kg at present. Rice is a water-in-

tensive crop (a kg of rice needs 5000 liters of water);

thus research is also progressing towards developing

aerobic rice (which will consume 50% less water over

inbred varieties).

The successful public-private partnerships can

be best explained in the seed industry. While the

public sector has done excellent work in technology

introduction, it is the private sector that is playing a

key role not only in seed production and marketing

but also in research and development. Prominent

private players in hybrid rice are Bayer Crop (40%

market share), Pioneer (20% market share), Advanta,

Metahelix, Bioseed, Kaveri seeds (8% market share),

JK seeds, Seed Works, Nuzziveedu Seeds, Syngenta,

Mahyco, Rasi Seed, etc.

Is the research cost prohibitively high and will

this drive consolidation?

Research cost is certainly not high, if approached

systematically and pragmatically. Molecular marker

technology or DNA-marker-based assessment of ge-

netic purity of seeds is of crucial importance as it can

considerably lower the gestation period and storage

costs. Marker technology is helpful in predicting

fertility and restoration. While these technologies

are not expensive there is a great lack of awareness

about its advantages. To impart the knowledge and

necessary skills for hybrid rice cultivation there is an

urgent need to train farmers, intensify hybrid culti-

vation, and propagate. The public sector is strong in

technology-generation in terms of releasing hybrids

and optimizing the technologies for seed produc-

tion. However, they are constrained by large-scale

seed production and marketing and that’s where

the private sector scores. Therefore, harnessing the

public-private partnerships is quintessential. More

than 80% of the hybrid seed is being produced in

Telenga (Western Andhra Pradesh – Warangal and

Karimnagar) and largely in dry conditions (during

rabi season). Thus, a consolidation can help over-

come these problems and can support refinements

in seed production technology and this brightens

the prospects for large-scale hybrid rice seed pro-

duction in India.


Indian Economy – Trend Indicators

Monthly Economic Indicators

Quarterly Economic Indicators

Growth Rates (%) Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14

IIP 3.5 1.5 (2.5) (1.8) 2.6 0.4 2.7 (1.2) (1.3) (0.2) 0.8 (1.8) (0.5) 3.4

PMI 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 51.4 52.5 51.3 51.3

Core sector 3.2 2.3 2.3 0.1 3.1 3.7 8.0 (0.6) 1.7 2.1 1.6 4.5 2.5 4.2

WPI 5.7 4.8 4.6 5.2 5.9 7.0 7.0 7.2 7.5 6.4 5.2 5.0 5.7 5.2

CPI 10.4 9.4 9.3 9.9 9.6 9.5 9.8 10.2 11.2 9.9 8.8 8.0 8.3 8.6

Money Supply 13.6 12.4 12.1 12.8 12.5 12.2 12.5 13.0 14.5 14.9 14.5 14.5 14.2 13.9

Deposit 14.4 13.4 13.5 13.8 13.5 13.1 14.1 14.4 16.1 15.8 15.7 15.9 14.6 15.1

Credit 14.1 14.6 14.2 13.7 14.9 17.1 17.8 16.6 15.5 14.5 14.7 14.4 14.3 14.1

Exports 7.0 1.7 (1.1) (4.6) 11.6 13.0 11.2 13.5 5.9 3.5 3.8 (3.7) (3.2) 5.3

Imports (2.9) 11.0 7.0 (0.4) (6.2) (0.7) (18.1) (14.5) (16.4) (15.2) (18.1) (17.1) (2.1) (15.0)

Tradedeficit(USD Bn) (10.3) (17.8) (20.1) (12.2) (12.3) (10.9) (6.8) (10.6) (9.2) (10.1) (9.9) (8.1) (10.5) (10.1)

Net FDI (USD Bn) 1.3 2.8 1.9 1.8 1.7 1.7 3.3 1.8 2.4 1.9 0.4 (0.1) 2.9 -

FII (USD Bn) 1.2 1.6 6.7 (8.7) (4.7) (2.0) 0.2 (0.4) - 2.9 2.6 1.5 5.4 -

ECB (USD Bn) 5.1 1.1 2.5 2.0 3.7 2.3 3.3 1.9 2.2 4.6 1.8 4.3 3.6 3.2

NRI Deposits (USD Bn) 0.7 1.3 1.7 2.5 1.3 1.2 5.9 4.5 14.6 2.0 0.7 0.7 2.5 -

Dollar-Rupee 54.4 54.4 55.1 58.4 60.6 63.0 63.8 61.6 62.6 61.9 62.1 62.2 61.0 60.4

FOREX Reserves (USD Bn) 293.4 296.4 287.9 284.6 280.2 275.5 276.3 283.0 291.3 295.7 292.2 294.4 303.7 309.9

Balance of Payment (USD Bn) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14Exports 80.2 75.0 72.6 74.2 84.8 73.9 81.2 79.8 83.7 Imports 131.7 118.9 120.4 132.6 130.4 124.4 114.5 112.9 114.3 Tradedeficit (51.5) (43.8) (47.8) (58.4) (45.6) (50.5) (33.3) (33.2) (30.7)Net Invisibles 29.8 26.8 26.7 26.6 27.5 28.7 28.1 29.1 29.3 CAD (21.8) (17.1) (21.1) (31.8) (18.2) (21.8) (5.2) (4.1) (1.3)CAD (% of GDP) 4.4 4.0 5.1 6.5 3.6 4.9 1.2 0.8 0.3 Capital Account 16.6 16.5 20.7 31.5 20.5 20.6 (4.8) 23.8 9.2 BoP (5.7) 0.5 (0.2) 0.8 2.7 (0.3) (10.4) 19.1 7.1

GDP and its Components (YoY, %) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14Agriculture & allied activities 3.9 1.8 1.8 0.8 1.6 4.0 5.0 3.7 6.3 Industry 7.4 (0.6) 0.1 2.0 2.0 (0.9) 1.8 (0.9) (0.5)Mining & Quarrying 6.5 (1.1) (0.1) (2.0) (4.8) (3.9) - (1.2) (0.4)Manufacturing 7.5 (1.1) (0.0) 2.5 3.0 (1.2) 1.3 (1.5) (1.4)Electricity, Gas & Water Supply 7.6 4.2 1.3 2.6 0.9 3.8 7.8 5.0 7.2 Services 6.5 6.7 6.5 6.1 5.8 6.5 6.1 6.4 5.8 Construction 7.6 2.8 (1.9) 1.0 2.4 1.1 4.4 0.6 0.7 Trade, Hotel, Transport and Communications 4.0 4.0 5.6 5.9 4.8 1.6 3.6 2.9 3.9 Finance, Insurance, Real Estate & Business Services 10.9 11.7 10.6 10.2 11.2 12.9 12.1 14.1 12.4 Community, Social & Personal Services 5.5 7.6 7.4 4.0 2.8 10.6 3.6 5.7 3.3 GDP at FC 6.3 4.5 4.6 4.4 4.4 4.7 5.2 4.6 4.6


Annual Economic Indicators and Forecasts Indicators Units FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14E FY15E

Real GDP growth % 9.5 9.6 9.3 6.7 8.6 8.9 6.7 4.5 4.6 5.2

Agriculture % 5.1 4.2 5.8 0.1 0.8 8.6 5 1.4 4.0 2.4

Industry % 8.5 12.9 9.2 4.1 10.2 8.3 6.7 0.9 0.0 2.9

Services % 11.1 10.1 10.3 9.4 10 9.2 7.1 6.2 6.0 6.6

Real GDP Rs Bn 32,531 35,644 38,966 41,587 45,161 49,185 52,475 54,821 57,486 60,475

Real GDP US$ Bn 733 787 967 908 953 1,079 1,096 1,008 951 1,008

Nominal GDP Rs Bn 36,925 42,937 49,864 56,301 64,778 77,841 90,097 101,133 113,205 126,723

Nominal GDP US$ Bn 832 948 1,237 1,229 1,367 1,707 1,881 1,859 1,872 2,112

Population Mn 1,106 1,122 1,138 1,154 1,170 1,186 1,202 1,219 1,236 1,254

Per Capita Income US$ 753 845 1,087 1,065 1,168 1,439 1,565 1,525 1,515 1,685

WPI (Average) % 4.5 6.6 4.7 8.1 3.8 9.6 8.7 7.4 6.0 5-5.5

CPI (Average) % 4.2 6.8 6.4 9 12.4 10.4 8.3 10.2 9.5 7.5-8

Money Supply % 15.5 20 22.1 20.5 19.2 16.2 15.8 13.6 13.5 14.0

CRR % 5 6 7.5 5 5.75 6 4.75 4.0 4.0 4.0

Repo rate % 6.5 7.5 7.75 5 5 6.75 8.5 7.5 8.0 8.0

Reverse repo rate % 5.5 6 6 3.5 3.5 5.75 7.5 6.5 7.0 7.0

Bank Deposit growth % 24 23.8 22.4 19.9 17.2 15.9 13.5 14.4 14.6 15.0

Bank Credit growth % 37 28.1 22.3 17.5 16.9 21.5 17.0 15.0 14.3 16.0

CentreFiscalDeficit Rs Bn 1,464 1,426 1,437 3,370 4,140 3,736 5,160 5,209 5,245 5,977

CentreFiscalDeficit % of GDP 4 3.3 2.9 6 6.4 4.8 5.7 5.2 4.6 4.7

Gross Central Govt Borrowings Rs Bn 1,310 1,460 1,681 2,730 4,510 4,370 5,098 5,580 5,639 6,767

Net Central Govt Borrowings Rs Bn 954 1,104 1,318 2,336 3,984 3,254 4,362 4,674 4,233 4,870

StateFiscalDeficit % of GDP 2.4 1.8 1.5 2.4 2.9 2.1 2.3 2.2 2.5 2.5

ConsolidtedFiscalDeficit % of GDP 6.4 5.1 4.4 8.4 9.3 6.9 8.1 7.4 7.1 7.2

Exports US$ Bn 105 129 166 189 182 251 310 307 319 328

YoY Growth % 23.4 22.6 28.9 13.7 -3.5 37.6 23.4 -1.0 3.9 3.0

Imports US$ Bn 157 191 258 309 301 381 500 502 466 500

YoY Growth % 32.1 21.4 35.1 19.7 -2.5 26.7 31.1 0.5 -7.2 7.3

Trade Balance US$ Bn -52 -62 -92 -120 -118 -130 -190 -196 -148 -172

Net Invisibles US$ Bn 42 52.2 75.7 91.6 80 84.6 111.6 107.5 115.2 118.1

CurrentAccountDeficit US$ Bn -10 -10 -16 -28 -38 -45 -78 -88 -32 -54

CAD (% of GDP) % -1.2 -1 -1.3 -2.3 -2.8 -2.6 -4.2 -4.7 -1.7 -2.6

Capital Account Balance US$ Bn 26 45 107 8 52 62 68 89 49 64

Dollar-Rupee (Average) 44.4 45.3 40.3 45.8 47.4 45.6 47.9 54.4 60.5 60.0

Source: RBI, CSO, CGA, Ministry of Agriculture, Ministry of commerce, Bloomberg, PhillipCapital India Research


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2014 FIFA World CupTM Schedule

Time Group Match Venue Result

FRIDAY, JUNE 13, 2014

01:30 IST Group A Brazilvs Croatia Arena Corinthians 3--1

21:30 IST Group A Mexicovs Cameroon Estadio das Dunas 1--0

SATURDAY, JUNE 14, 2014

00:30 IST Group B Spainvs Netherlands Arena Fonte Nova 1--5

03:30 IST Group B Chile vs Australia Arena Pantanal 3--1

21:30 IST Group C Colombia vs Greece Estadio Mineirão 3--0

SUNDAY, JUNE 15, 2014

00:30 IST Group D Uruguay vs Costa Rica Estadio Castelão 1--3

03: 30 IST Group D England vs Italy Arena Amazonia 1--2

06:30 IST Group C Ivory Coast vs Japan Arena Pernambuco 2--1

21: 30 IST Group E Switzerland vs Ecuador Nacional 2--1

MONDAY, JUNE 16, 2014

00:30 IST Group E France vs Honduras Estadio Beira-Rio 3--0

03:30 IST Group F Argentina vs Bosnia and Herzegovina Estadio do Maracanã 2--1

21:30 IST Group G Germany vs Portugal Arena Fonte Nova TBD

TUESDAY, JUNE 17, 2014

0:30 IST Group F Iran vs Nigeria Arena da Baixada TBD

03:30 IST Group G Ghana vs United States Estadio das Dunas TBD

21:30 IST Group H Belgium vs Algeria Estadio Mineirão TBD

WEDNESDAY, JUNE 18, 2014

0:30 IST Group A Brazil vs Mexico Estadio Castelão TBD

03:30 IST Group H Russia vs South Korea Arena Pantanal TBD

21:30 IST Group B Australia vs Netherlands Estadio Beira-Rio TBD

THURSDAY, JUNE 19, 2014

0:30 IST Group B Spain vs Chile Estadio do Maracanã TBD

03:30 IST Group A Cameroon vs Croatia Arena Amazonia TBD

21:30 IST Group C Colombia vs Ivory Coast Nacional TBD


0:30 IST Group D Uruguay vs England Arena Corinthi TBD

3:30 IST Group C Japan vs Greece Estadio das Dunas TBD

21:30 IST Group D Italy vs Costa Rica Arena Pernambuco TBD


Time Group Match Venue Result


0:30 IST Group E Switzerland vs France Arena Fonte Nova TBD

3:30 IST Group E Honduras vs Ecuador Arena da Baixada TBD

21:30 IST Group F Argentina vs Iran Estádio Mineirão TBD


0:30 IST Group G Germany vs Ghana Estádio Castelão TBD

3:30 IST Group F Nigeria vs Bosnia and Herzegovina Arena Pantanal TBD

21:30 IST Group H Belgium vs Russia Estádio Maracanã TBD


0:30 IST Group H South Korea vs Algeria Estádio Beira-Rio TBD

3:30 IST Group G United States vs Portugal Arena Amazônia TBD

21:30 IST Group B Australia vs Spain Arena da Baixada TBD

21:30 IST Group B Netherlands vs Chile Arena Corinthians TBD

TUESDAY, JUNE 24, 2014

01:30 IST Group A Croatia vs Mexico Arena Pernambuco TBD

01:30 IST Group A Cameroon vs Brazil Estádio Nacional de Brasilia TBD

21:30 IST Group D Italy vs Uruguay Estádio das Dunas TBD

21:30 IST Group D Costa Rica vs England Estádio Mineirão TBD

WEDNESDAY, JUNE 25, 2014

01:30 IST Group C Japan vs Colombia Arena Pantanal TBD

01:30 IST Group C Greece vs Ivory Coast Estádio Castelão TBD

21:30 IST Group F Nigeria vs Argentina Estádio Beira-Rio TBD

21:30 IST Group F Bosnia and Herzegovina vs Iran Arena Fonte TBD

THURSDAY, JUNE 26, 2014

01:30 IST Group E Honduras vs Switzerland Arena Amazônia TBD

01:30 IST Group E Ecuador vs France Estádio Maracanã TBD

21:30 IST Group G United States vs Germany Arena Pernambuc TBD

21:30 IST Group G Portugal vs Ghana Estádio Nacional de Brasilia TBD


01:30 IST Group H SouthKoreavs Belgium Arena Corinthians TBD

01:30 IST Group H Algeria vs Russia Arena da Baixada TBD



Time Match Venue Result

ROUND OF 16


21:30 IST 1A vs 2B Estadio Mineirão TBD


01:30 IST 1C vs 2D Estadio do Maracanã TBD

21:30 IST 1B vs 2A Estadio Castelão TBD


01:30 IST 1D vs 2C Arena Pernambuco TBD

21:30 IST 1E vs 2F Nacional TBD

TUESDAY, JULY 1, 2014

01:30 IST 1G vs 2H Estadio Beira-Rio TBD

21:30 IST 1F vs 2E Arena Corinthians TBD

WEDNESDAY, JULY 2, 2014

01:30 IST 1H vs 2G Arena Fonte Nova TBD

QUARTER-FINALS

FRIDAY, JULY 4, 2014

21:30 IST Winner Match 51 vs Winner Match 52 Estadio do sMaracanã TBD

SATURDAY, JULY 5, 2014

01:30 IST Winner Match 49 vs Winner Match 50 Estadio Castelão TBD

21:30 IST Winner Match vs Winner Match 56 Nacional TBD

SUNDAY, JULY 6, 2014

01:30 IST Winner Match 53 vs Winner Match 54 Arena Fonte Nova TBD

SEMI-FINALS

WEDNESDAY, JULY 9, 2014

01:30 IST Winner Match 57 vs Winner Match 58 Estadio Mineirão TBD

THURSDAY, JULY 10, 2014

01:30 IST Winner Match 59 vs Winner Match 60 Arena Corinthians TBD

THIRD PLACE

SUNDAY, JULY 13, 2014

01:30 IST Loser Match 61 vs Loser Match 62 Nacional TBD

FINAL

MONDAY, JULY 14, 2014

0:30 IST Winner Match 61 vs Winner Match 62 Estadio do Maracanã TBD




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