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“COMPREHENSIVE APPROACH TOWARDS MARKETING TREASURY PRODUCTS TO THE INSTITUTIONAL SEGMENT”
PROJECT CARRIED OUT AT “AXIS BANK”
MANINDRA BAHARADWAJ , ROLL NO:- 3
RESEARCH OBJECTIVES
Understanding the Market Dynamics of various sectors like Mutual Funds, Insurance , All India Financial Institutions, Pension Fund/Provident Funds /Gratuity.
Finding the untapped clients in the segment to whom treasury products can be targeted and understanding the clients needs & accordingly expanding the product bouquet to the segment.
Analyze other peer banks treasury products offering to the segment.
RESEARCH METHODOLOGY
In this project the information is mostly taken from websites like IRDA, SEBI, RBI etc and reports like Indian Mutual Fund Industry:- (The Future in a dynamic environment outlook for 2015, by KPMG) etc. Also views have been taken from project guide and by arranging meetings with clients like:-
REGIONAL PROVIDENT FUND LIC PENSION FUND TATA MOTORS (TREASURY) TATA INVESTMENTS GIC INVESTMENT SBI MUTUAL FUND TATA MOTORS (INVESTMENTS) GIC PENSION FUND & GRATUITY CELL SEAMEN’S PROVIDENT FUND ETC.
MARKET DYNAMICS OF INDIAN INSURANCE INDUSTRY
INDUSTRY STRUCTURE
MINISTRY OF FINANCE
Insurance Regulatory Development Body (IRDA)
Life Insurance
Public
Private
Non-Life Insurance
Public
Private
Type of Business
Public Sector Private Sector Total
Life Insurance 1 22 23
Non-Life Insurance
6 16 22
Re-Insurance 1 0 1
Total 8 38 46
Source:- IRDA
India is the 5th largest insurance market in Asia with total premium of INR 295780 crores in FY (2009-10).
Total premium underwritten by insurance sector is increased by 17.3% from FY 2009 where total premium is Rs 252143 crores.
Total Premium increased at a CAGR of 14% during year 2007-08 to 2009-10
2007-08 2008-09 2009-100
50000
100000
150000
200000
250000
300000
350000
229174252143
295780
Total Insurance Premium
2007-08
2008-09
2009-10
(Rs in Cr)
Source: indiareport.com
LIFE INSURANCE MARKET
Recorded a premium income of Rs 261025 crores during FY (2009-10) growth of 18% from previous financial year.
Private Life Insurance companies premium continued to rise in FY(2009-10) which surged to 33% from 29.08% in FY (2008-09).
Among top players in terms of total life insurance premium are ICICI Prudential, Bajaj Allianz, SBI Life, HDFC Standard, Birla Sun Life etc.
Source: IRDA
Total Life Insurance Premium
2008-09 2009-10
Public Sector 157288 176000
Private Sector 64503 85025
Source: economictimes.indiatimes.com
18.30%
16.40%
11.60%10.30%
8.40%
7.70%
4.80%22.50%
Market share amongst Private Players (FY 2009-10) based on new business Premium
SBI Life
ICICI Prudential
Bajaj Allianz Life
Reliance Life
HDFC Standard Life
Birla Sun Life
Max New York Life
Others
70.92%
29.08%
Percentage Wise Distribution ofTotal Life Insurance premium
(FY 2008-09)
Public Sector
Private Sector
67.42%32.58%
Percentage Wise Distribution of Total Life Insurance premium
(FY 2009-10)
Public Sector
Private Sector
Market Share of Public Sector has decreased by 3.5% in FY (2009-10)
But overall the Market Share is dominated by the Public Sector.
Source: IRDA Data
NON-LIFE INSURANCE MARKET
Recorded a Premium income of Rs.34755 crores exhibted growth of 14.5% from previous financial year.
Among the top Public players in terms of total Non-Life insurance premium are New India Insurance, National Insurance etc.
Top Private players include ICICI Lombard, Bajaj Allianz etc
Source: IRDA Data
Total Premium Non-Life Insurers 2008-09 2009-10
Public Sector 18030 20528
Private Sector 12321 14227
Total 30351 34755
59.40%
40.60%
Percentage wise distribution of Total Non-Life Insurance premium
(FY 2008-09)
Public Sector
Private Sector
59.06%
40.94%
Percentage wise distribution of Total Non-Life Insurance premium
(FY 2009-10)
Public Sector
Private Sector
Market Share of Public Sector has slightly decreased by 0.34% in FY 2009-10
Again Non-Life Insurance market is dominated by the Public Sector.
Source: IRDA Data
INSURANCE PENETRATION
Insurance Penetration is the important indicator of the potential and performance of the insurance sector.
Insurance penetration is defined as the ratio of premium underwritten in a given year to the gross domestic product (GDP).The insurance penetration is 4.6% in 2009.
At the present time when the economy is growing the personal disposable incomes also rises. The increased income levels of the people flow into various sectors of the economy and for building up assets (both physical and financial) for themselves. Therefore people look for risk mitigating tools like insurance. Therefore insurance penetration also increases.
KEY FINDINGS
The Insurance Industry is getting more fragmented as new players are taking away the market share of existing players.
Banks themselves have started entering alliances with insurance companies to underwrite insurance products rather than merely distribute them.
Industry is dominated by Public Sector in both life and non-life insurance sector.
Total Life Insurance Premium increased at a CAGR of 14% and Non-Life Insurance Premium increased at a CAGR of 12% during the year 2007-08 to 2009-10 which is faster than our GDP growth rate.
MARKET DYNAMICS OF INDIAN MUTUAL FUND INDUSTRY
2007 2008 2009 20100
5
10
15
20
25
30
35
40
45
3235
3842
Growth in the No. of AMCs
2007
2008
2009
2010
Asset Management Co. AUM IN CR Percentage share to Total AUM
Reliance Capital AUM 110,413 14.7%
HDFC AUM Co. Ltd 88,780 11.8%
ICICI Prudential AUM Co. Ltd.
80,989 10.8%
UTI AUM Co. Ltd. 80,218 10.7%
Birla Sun Life AUM Co. Ltd. 62,343 8.3%
Mutual Fund Industry currently consists of 42 players that been given regulatory approval by SEBI.The Industry is very fragmented as top 3 AMCs account for 37.3% market share.As at the end of March 2010 , the total AUM is Rs. 747525 crores, increasing AUM growth by 51.5% from previous financial year.
TOP 5 AUM COMPANIES IN FY (2009-10)
Source: AMFI Data
Corporates/Banks/Fis
FIIs HNIs Retail0%
20%
40%
60%
80%
100%
55% 1.1% 22% 21%
54% 0.8% 19% 27%
Industry Segmentation
2010
2009
33%
51%
3% 13%
Percentage wise distribution of Schemes
Equity
Debt
Balanced Schemes
Liquid/Money Market
Industry has significantly high ownership from Institutional InvestorsIncreasing participation from Retail Investors due to strong Equity market performance.Debt products dominate the product mix.New Product Categories such as Exchange Traded Funds (ETFs), Gold ETFs has gradually gaining popularity.As of March 2010, ETF & Gold ETF comprises of 0.41% of total AUM.
Source: AMFI Data
MARKET SHARE OF PLAYERS AS ON MARCH 2009 &2010
16.00%
11.70%
10.40%
9.80%9.50%
5.30%4.60%
32.70%
AUM March 2009
Reliance Mutual Fund
HDFC Mutual Fund
ICICI Prudential Mutual Fund
UTI Mutual Fund
Birla Sunlife Mu-tual Fund
SBI Mutual Fund
LIC Mutual Fund
Others
14.70%11.80%
10.80%
10.70%8.30%5.60%
5.00%
33.10%
AUM March 2010
Reliance Mutual Fund
HDFC Mutual Fund
ICICI Prudential Mutual Fund
UTI Mutual Fund
Birla Sunlife Mu-tual Fund
LIC Mutual Fund
SBI Mutual Fund
Others
In March 2010, the top 5 AMCs had a 68% share of the Industry’s assets which was increased from 58% recorded in March 2009.The top 10 AMCs industry’s share rose to 80% in March 2010 from 79% in March 2009.
Source: AMFI Data
KEY FINDINGS
Mutual Fund Industry is very fragmented as top three AMCs account for 37.3 % of market share.
The growth rate of AUM is even faster 34% compared to the insurance sector.
High margin products such as equity and select debt products likely to continue to contribute a significant share of industry AUM.
Emerging product categories such as ETFs, Commodity funds (Gold), have marginal share of AUM inspite of rapid growth.
MARKET DYNAMICS OF INDIAN PENSION/PROVIDENT FUND/GRATUTIY INDUSTRY
The Indian Pension Fund Market for FY 2009 stood at Rs. 3,17,500 crores.
Pension Market is highly under penetrated as of an estimated workforce of 321 million only 13% is covered by pension schemes.
Total pension assets are 6% of India’s GDP
78.70%
15.70%
2.60%1.40%1.00%
Pension Fund Asset Distribution FY 09
EPF,EPS,EDLI
Private Pension Schemes
PPF
Defense
NPS
Source: KPMG Analysis
Personal & Group pension products offered by Life Insurers are regulated by IRDA and those offered by Mutual Funds are regulated by SEBI.
Schemes like EPF, EPS & EDLI are regulated by EPFO & schemes like NPS are regulated by PFRDA.
Public Sector entities in Pension Fund market are LIC Pension Fund, SBI Pension Fund, UTI retirement solutions.
Private Sector entities are ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund , Reliance Capital Pension Fund.
STRUCTURE OF PENSION FUNDS
A DC plan wherein benefit post retirement depends on the return of an individual portfolio generates.
A DB plan wherein employee benefit is calculated on the basis of individual duration at work & his salary drawn
Voluntary Schemes include PPF which is operated by government, pension plans of LIC & private life insurance companies.
Classification of Pension Market
Defined Benefit
EPF NPS
Voluntary Pension Scheme
Defined Contribution
EPS NPS
PPF &
Defenc
e Pension
STRUCTURE OF PROVIDENT FUNDS
Provident Fund Trust
Private Trust (Recognized by I.T
Follow Guidelines under Ministry of Finance
Recognized Private Trust
U/S 17 (1) (a)
Exempt
Exemption to an estt. as a whole
Follow Guidelines
Under Ministry of
Labour
U/S 17 (2) Para 27- (a)
Partially Exempt
Exemption to a class of employe
es
Source: EPFO
KEY FINDINGDS
The Pension Fund Industry is highly under penetrated with only 13 percent of working population having some kind of pension for retirement.
The market is largely dominated by Defined Contribution plans. A large portion of the overall pension assets are still contributed
from schemes under EPFO. Competition from financial products such as mutual funds,
insurance, shares which are more attractive for investments as they provide higher returns and liquidity, have grown at a much faster rate as compared to provident and pension products.
Entry of large number of private pension players like ICICI Prudential pension fund AMC, Reliance capital pension fund etc provide more options for investments as more products will be pushed over the counter.
MAJOR ALL INDIA FINANCIAL INSTITUTIONS
National Bank for Agriculture and Rural Development (NABARD). Small Industries Development Bank of India (SIDBI). National Housing Bank (NHB). Life Insurance Corporation of India (LIC). General Insurance Corporation of India (GIC). Industrial Finance Corporation of India (IFCI). Industrial Investment Bank of India (IIBI). Power Finance Corporation Limited.(PFC) Indian Railway Finance Corporation Limited (IRFC). Export-Import Bank of India.(EIBI) Infrastructure Development Finance Corporation Limited. (IDFC) Indian Renewable Energy Development Agency Limited. (IREDA)
PRODUCT SEGMENTATION OF INSTITUTIONAL SEGMENT
Institutional Segment
T-Bills
SDL
Certificate of Deposit
Commercial Papers
Derivatives
Term Deposit
G-Sec
Insurance
X
Mutual Funds
Pension/Provident Fund/Gratuity
X X X
All India FinancialInstitutions
X X
TREASURY PRODUCTS OF AXIS BANK
Government Securities:- It is a tradable security issued by the Central Government or the
State Governments. Such securities can be short term (usually called Treasury Bills, with
orginal maturities of less than 1 year) or long term (usually called Government Bonds or dated securities with original maturity of one year or more).
Treasury Bills:- Are short term debt instruments issued by the Government of
India and are presently issued in three tenors, viz., 91 days 182 days and 364 days
These are zero coupon securities and pay no coupon. They are issued at a discount and redeemed at the face value at maturity.
The return to the investors is the difference between the maturity value or face value and the issue price.
State Development Loans:- Are issued by the State Governments and RBI coordinates the
actual process of selling these securities The coupon rates on State Development Loans are marginally
higher than those of GOI-Secs. The State Development Loans are sold through the auction process.
All the auctions are multiple price auctions (in a Multiple Price auction, the successful bidders are required to pay for the allotted quantity of securities at the respective price / yield at which they have bid
CERTIFICATE OF DEPOSIT:- It is a promissory note issued by a bank in form of a certificate
entitling the bearer to receive interest. The certificate bears the maturity date, the fixed rate of interest and
the value. Its term ranges from three months to five years and restricts the
holders to withdraw funds on demand. However, on payment of certain penalty the money can be withdrawn on demand.
The returns on Certificate of Deposits are higher than T-Bills because it assumes higher level of risk.
TREASURY PRODUCTS
AXIS BANK ICICI BANK HDFC BANK
Government Securities
Treasury Bills
State Development Loans
Fixed Deposit
Derivatives
Issuing & Paying Agent
Forex Remittances
TREASURY PRODUCTS & SERVICES OF BANKS
RECOMMEDATIONS
Advisory services to PF/Gratuity/Pension Fund for their Investments.
Single Point relationship for all treasury products. Dedicated relationship management team in other center apart
from existing Mumbai & Delhi. Bank can also look at providing advice to new Institutional segment
like SMEs to help manage their funds.